16 November 2009
Breville Directors reject GUD’s takeover offer
Breville Group Limited (Breville) today released its Target’s Statement in relation to the
takeover offer from G.U.D. Holdings Limited (GUD) dated 20 October 2009.
The Target’s Statement sets out the Breville Board’s recommendation in relation to GUD’s
offer and the reasons for the Board’s recommendation. The Board encourages shareholders
to read the Target’s Statement in full.
Breville’s Chairman, John Schmoll, said “The Breville Board has carefully assessed GUD’s
offer and each Director has decided to reject GUD’s offer in relation to their own shares in
Breville.”
“The Board also unanimously recommends that Breville shareholders reject GUD’s offer.”
“The Breville Board and the Independent Expert both believe that GUD is not offering enough
for Breville. Breville has significant strategic value to GUD and the potential synergies are
very large.”
“The Breville Board believes that GUD can pay significantly more for Breville.”
“To reject GUD’s offer, Breville shareholders do not need to do anything in relation to any
documents received from GUD.”
Key reasons for the Breville Board’s recommendation
The key reasons for the Breville Board’s recommendation are set out below.
1. The Independent Expert has concluded that the offer is neither fair nor reasonable
The Breville Board has commissioned an Independent Expert, PwC Securities, to prepare an
Independent Expert’s Report in relation to GUD’s offer. The Independent Expert has
assessed the value of GUD’s offer to be less than the value of your Breville shares.
The Independent Expert has assessed the value of:
•
Breville shares to be between $2.73 and $2.90 per share on a controlling basis
incorporating 50% of expected synergies; and
•
GUD’s offer consideration to be:
• between $2.20 and $2.25 per Breville Share assuming 50.1% control of
Breville; and
• between $2.57 and $2.66 per Breville Share assuming 100% control of
Breville.
Breville Group Limited ABN 90 086 933 431
Building 2, Port Air Industrial Estate, 1A Hale St, Botany, NSW, 2019 Australia
Tel: (02) 9384 8100
Fax (02) 9700 1249 Website: www.brevillegroup.com
2. Your Board believes that GUD is not offering enough for Breville
Your Board believes Breville has significant strategic value to GUD including providing access
to an international business and the Breville brand which can be used in North America. The
Board estimates that synergies of between $20 million and $25 million per annum could be
generated if GUD acquires 100% of Breville. Other potential buyers of Breville are expected
to be able to access additional synergies.
The Independent Expert considers Breville Shareholders should be entitled to receive 50% of
these synergies, representing between $0.59 and $0.64 per Breville share. In addition,
Breville has upgraded its expected profit for FY2010 since GUD announced its offer.
3. The value of GUD’s offer is uncertain
GUD is not offering any cash—only GUD shares. The value of a GUD share will depend on
(amongst other things) GUD’s earnings and the synergies realised from a combination of
GUD and Breville.
Despite being requested by the Breville Board to do so, GUD has not provided any guidance
for its FY2010 earnings or the synergies it expects to generate from a combination of GUD
and Breville. In addition, the Breville Board believes that most of the potential synergies will
be realised only if GUD acquires 100% of Breville and your Board believes that there is a real
risk this may not occur under the current offer.
4. Breville’s largest shareholder has not indicated whether it intends to accept GUD’s
offer
GUD needs the support of Breville’s largest shareholder to acquire 100% ownership of
Breville which is necessary to maximise the synergies from a combination of GUD and
Breville.
5. GUD might make a higher offer for Breville in the future
If GUD acquires control (but not 100% ownership) of Breville under the current offer, the
Breville Board believes that GUD will be able to realise only limited synergies and GUD will
have a strong incentive to pursue a further offer for the remaining shares in Breville.
The Breville Board believes GUD has significant financial capacity to make an offer in the
future to acquire the remaining shares in Breville at a higher price than its current offer.
Breville shareholders who accept the current offer will not benefit from any such higher price.
6. “Scrip for scrip” capital gains tax rollover relief may not be available
Unless CGT rollover relief is available, Breville shareholders who realise a capital gain as a
result of accepting GUD’s offer may have a tax liability. There is no cash component in GUD’s
offer to pay that tax.
7. GUD’s offer is conditional and is not final
Although the Breville Board intends to reject GUD’s offer in relation to their own shares and
unanimously recommends that Breville shareholders also reject GUD’s offer, some Breville
shareholders might want to accept the offer. Further details are set out in the Target’s
Statement.
The Target’s Statement will be sent to Breville shareholders by 20 November 2009.
For further information, please contact:
UBS
Kelvin Barry
+61 3 9242 6506
Citadel Communications
Peter Brookes
+61 2 9290 3076
Breville Group Limited ABN 90 086 933 431
Building 2, Port Air Industrial Estate, 1A Hale St, Botany, NSW, 2019 Australia
Tel: (02) 9384 8100
Fax (02) 9700 1249 Website: www.brevillegroup.com
THIS IS AN IMPORTANT DOCUMENT AND REQUIRES
YOUR IMMEDIATE ATTENTION
IF YOU DO NOT UNDERSTAND ITS CONTENTS OR ARE
NOT SURE WHAT TO DO, PLEASE CONSULT YOUR LEGAL,
FINANCIAL OR OTHER PROFESSIONAL ADVISER IMMEDIATELY
ACN 086 933 431
TARGET’S STATEMENT
This Target’s Statement is issued by
Breville Group Limited (ACN 086 933 431)
in response to the takeover offer by
G.U.D. Holdings Limited (ACN 004 400 891)
Legal Adviser
Financial Adviser
Important notices
This Target’s Statement is dated 16 November 2009 and
is given by Breville under Part 6.5 of the Corporations Act.
This Target’s Statement is given in response to the Offer
made by GUD pursuant to the Bidder’s Statement dated
20 October 2009 which was served on Breville on
20 October 2009.
Defined terms
Unless otherwise noted, capitalised terms and certain
abbreviations used in this Target’s Statement are defined
in the Definitions in section 10.
No account of personal circumstances
This Target’s Statement does not take into account the
individual investment objectives, financial or tax situation or
particular needs of each Breville Shareholder. You may wish
to seek independent financial and taxation advice before
making a decision whether or not to accept the Offer for
your Breville Shares.
Disclaimer regarding forward looking statements
This Target’s Statement contains forward looking
statements. You should be aware that such statements
are only predictions and are subject to inherent risks
and uncertainties. Those risks and uncertainties include
general economic conditions (including changes in
currency exchange rates and interest rates), the regulatory
environment, structural changes in the industries in which
Breville operates, market demand and conditions in the
financial markets. Actual events or results may differ
materially from the events or results expressed or implied
in any forward looking statement and such deviations are
both normal and to be expected. None of Breville, any of
its officers, or any person named in this Target’s Statement
with their consent or any person involved in the preparation
of this Target’s Statement makes any representation or
warranty (either express or implied) as to the accuracy or
likelihood of fulfilment of any forward looking statement,
or any events or results expressed or implied in any forward
looking statement. You are cautioned not to place undue
reliance on those statements.
The forward looking statements in this Target’s Statement
reflect views held only as at the date of this Target’s
Statement.
ASIC and ASX disclaimer
A copy of this Target’s Statement has been lodged with
ASIC and sent to ASX. None of ASIC, ASX or any of their
respective officers takes any responsibility for the content
of this Target’s Statement.
Breville Shareholder Information Line
Breville has established an information line which Breville
Shareholders should call if they have any queries in relation
to the Offer. The Breville Shareholder Information Line is
1800 207 622 and is available Monday to Friday between
8.30am and 5.30pm (Melbourne time).
Further information relating to the Offer can be obtained
from Breville’s website at www.brevillegroup.com.au
Key dates
Date of the Offer
Date of this Target’s Statement
Close of the Offer Period (unless extended)*
*The Offer may be extended to the extent permissible under the Corporations Act.
26 October 2009
16 November 2009
8 December 2009
Target’s Statement
Contents
CHAIRMAN’S LETTER.. ........................................................ 2
1KEY REASONS FOR YOUR BOARD’S
RECOMMENDATION TO REJECT GUD’S OFFER................ 5
2REASONS WHY YOU MIGHT WANT TO ACCEPT
GUD’S OFFER.. ............................................................ 19
3 WHAT ARE YOUR OPTIONS?.. ....................................... 22
4 FREQUENTLY ASKED QUESTIONS.. ............................... 24
5BREVILLE FINANCIAL INFORMATION
AND FORECASTS........................................................ 28
6 RISK FACTORS............................................................ 37
7 DIRECTORS’ RECOMMENDATION AND INTERESTS........ 40
8 TAXATION CONSIDERATIONS....................................... 42
9 OTHER MATERIAL INFORMATION................................. 43
10 DEFINITIONS.. ............................................................. 52
11 AUTHORISATION......................................................... 55
ANNEXURE A - INDEPENDENT ACCOUNTANT’S REPORT... 56
ANNEXURE B - INDEPENDENT EXPERT’S REPORT......... 62
ANNEXURE C - A SX ANNOUNCEMENTS IN
RELATION TO BREVILLE.. .................... 145
ANNEXURE D - K EY ASSUMPTIONS TO ILLUSTRATIVE
PRO FORMA EPS ACCRETION FOR GUD
SET OUT IN SECTION 1 OF THIS
TARGET’S STATEMENT....................... 146
12 CORPORATE DIRECTORY........................................... 147
1
Target’s Statement
Chairman’s letter
16 November 2009
Dear Breville Shareholder
GUD has made an unsolicited offer to acquire your Breville Shares. GUD is offering one GUD Share for
every four of your Breville Shares (Offer). This document is Breville’s Target’s Statement which sets out
your Board’s recommendation in relation to the Offer and the reasons for your Board’s recommendation.
Your Board has carefully assessed GUD’s Offer.
Your Board has decided to REJECT GUD’s Offer in relation to their own shares in Breville. Your Board
also unanimously recommends that you reject GUD’s Offer. To reject GUD’s Offer, you do not need to do
anything in relation to any documents received from GUD.
The key reasons for your Board’s recommendation are set out below.
1 The Independent Expert has concluded that GUD’s Offer is neither fair nor reasonable.
Your Board has commissioned an Independent Expert, PwC Securities, to prepare an Independent
Expert’s Report in relation to GUD’s Offer. The Independent Expert has assessed the value of GUD’s
Offer to be less than the value of your Breville Shares.
The Independent Expert has assessed the value of:
(a) your Breville Shares to be between $2.73 and $2.90 per share on a controlling basis incorporating
50% of expected synergies; and
(b) GUD’s offer consideration to be:
(i) between $2.20 and $2.25 per Breville Share assuming 50.1% control of Breville; and
(ii) between $2.57 and $2.66 per Breville Share assuming 100% control of Breville.
2 Your Board believes that GUD is not offering enough for Breville.
Your Board believes Breville has significant strategic value to GUD including providing access to an
international business and the Breville brand which can be used in North America. Your Board estimates
that synergies of $20– $25 million per annum could be generated if GUD acquires 100% of Breville. Other
potential buyers of Breville are expected to be able to access additional synergies. The Independent
Expert considers Breville Shareholders should be entitled to receive 50% of these synergies, representing
between $0.59 and $0.64 per Breville Share. In addition, Breville has upgraded its expected profit for
FY2010F since GUD announced its Offer.
3 The value of GUD’s Offer is uncertain.
GUD is not offering any cash–only GUD Shares. The value of a GUD Share will depend on (amongst other
things) GUD’s earnings and the synergies realised from a combination of GUD and Breville. Despite being
requested by the Breville Board to do so, GUD has not provided any guidance for its FY2010F earnings
or the synergies it expects to generate from a combination of GUD and Breville. In addition, your Board
believes that most of the potential synergies will be realised only if GUD acquires 100% of Breville and
your Board believes that there is a real risk this may not occur under the current Offer.
4 Breville’s largest shareholder has not indicated whether it intends to accept GUD’s Offer.
GUD needs the support of that shareholder to acquire 100% ownership of Breville which is necessary to
maximise the synergies from a combination of GUD and Breville.
2
Chairman’s letter
5 GUD might make a higher offer for Breville in the future.
If GUD acquires control (but not 100% ownership) of Breville under the current Offer, your Board believes
that GUD will be able to realise only limited synergies and GUD will have a strong incentive to pursue a
further offer for the remaining shares in Breville.
Your Board believes GUD has significant financial capacity to make an offer in the future to acquire the
remaining shares in Breville at a higher price than its current Offer. Breville Shareholders who accept the
current Offer will not benefit from any such higher price.
6 “Scrip for scrip” capital gains tax rollover relief may not be available.
Unless CGT rollover relief is available, Breville Shareholders who realise a capital gain as a result of
accepting GUD’s Offer may have a tax liability. There is no cash component in GUD’s Offer to pay that tax.
7 GUD’s Offer is conditional and is not final.
Section 1 of this Target’s Statement sets out further details in relation to the reasons outlined above.
Although your Board intends to reject GUD’s Offer in relation to their own shares and unanimously
recommends that Breville Shareholders also reject GUD’s Offer, some Breville Shareholders might want to
accept the Offer.
GUD’s Offer represents a significant premium to Breville’s share price prior to the announcement of
GUD’s Offer. In addition, there is a real chance that GUD will acquire control (but not 100% ownership)
of Breville under the current Offer. If GUD controls Breville there will be risks in being a minority
shareholder in Breville. Further, there is no certainty that GUD will increase its Offer Consideration or
make another higher offer in the future. These and other reasons why you might want to accept the
Offer are set out in section 2 of this Target’s Statement.
Ultimately, your decision with respect to GUD’s Offer should depend on your own financial investment
profile, circumstances and risk appetite. Accordingly, your Board encourages you to read this Target’s
Statement having regard to your own circumstances. You should consider the Board’s reasons for their
recommendation, the reasons why you might want to accept GUD’s Offer and the risk factors which are
set out in this Target’s Statement. If you are in any doubt as to the action that you should take in relation
to the Offer, you should consult a professional adviser.
You have ample time to assess GUD’s Offer and monitor developments because GUD’s Offer is not
scheduled to close until at least 7.00pm (Melbourne time) on 8 December 2009 and may be extended.
Your Board will continue to keep you updated on developments as they occur, directly and via our website
www.brevillegroup.com.au. In the meantime, if you have any questions in relation to this Target’s
Statement or your shareholding in Breville, please call our Breville Shareholder Information Line on
1800 207 622, Monday to Friday between 8.30am and 5.30pm (Melbourne time).
Yours sincerely
John Schmoll
Non-Executive Chairman
3
Target’s Statement
You have three options
Option 1: Reject GUD’s Offer
Your Board unanimously recommends that you reject the Offer
To reject GUD’s Offer, take no action and do nothing in relation to the documents
received from GUD
Option 2: Sell your Breville Shares on ASX
Option 3: Accept GUD’s Offer
In order to make your decision you should
■■
Read GUD’s Bidder’s Statement
■■
Read this Target’s Statement which is issued by Breville
■■
If you are in any doubt as to the action that you should take in
relation to the Offer, you should consult your legal, financial or
other professional adviser
■■
If you have any questions, call the Breville Shareholder Information
Line on 1800 207 622, Monday to Friday between 8.30am and
5.30pm (Melbourne time)
4
1Key reasons for your Board’s
recommendation to reject GUD’s Offer
Your Board has carefully considered GUD’s Offer to acquire all of your Breville Shares, and has considered the
factors relevant to Breville Shareholders in either accepting or rejecting the Offer. Your Board has commissioned
an Independent Expert’s Report from PwC Securities. A full copy of the Independent Expert’s Report is included in
Annexure B of this Target’s Statement.
Your Board has decided to reject GUD’s Offer in relation to their own Breville Shares. Your Board also unanimously
recommends that you reject GUD’s Offer. To reject GUD’s Offer, you do not need to do anything in relation to any
documents received from GUD.
Before you take any action in relation to the Offer, you should consider both the reasons for your Board’s unanimous
recommendation to reject the Offer in this section and the alternative reasons why you might accept the Offer in
section 2.
Your Board will advise you if there are any material developments in relation to the Offer during the Offer Period.
If you are in any doubt as to the action that you should take in relation to the Offer, you should consult your legal,
financial or other professional adviser. In particular, the tax consequences of accepting the Offer will depend upon
the circumstances of individual Breville Shareholders. You should consult your tax adviser if you need further
information regarding the tax consequences of acquiring, holding or disposing of Breville Shares.
1 The Independent Expert has concluded that GUD’s Offer is
neither fair nor reasonable
2 Your Board believes that GUD is not offering enough for Breville
3 The value of GUD’s Offer is uncertain
4 Breville’s largest shareholder has not indicated whether it
intends to accept GUD’s Offer
5 GUD might make a higher offer for Breville in the future
6 “Scrip for scrip” capital gains tax rollover relief may not be
available and Breville Shareholders will not receive cash from
GUD to pay any tax liability
7 GUD’s Offer is conditional and is not final
5
Target’s Statement
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
1
T he Independent Expert has concluded that GUD’s
Offer is neither fair nor reasonable
Your Board has commissioned an Independent Expert, PwC Securities, to provide an Independent Expert’s
Report.
The Independent Expert has determined that the Offer is neither fair nor reasonable. Your Board believes
that the Independent Expert’s conclusions support its unanimous recommendation to reject GUD’s Offer.
The Independent Expert has assessed the value of Breville Shares on a controlling basis to be between
$2.73 and $2.90 per Breville Share incorporating 50% of expected synergies.
The Independent Expert has assessed the value of GUD’s Offer Consideration to be between $2.20 and $2.25
per Breville Share assuming 50.1% control of Breville, and to be between $2.57 and $2.66 per Breville Share
assuming 100% control of Breville, which is below this assessed value range of Breville Shares.
$3.00
$2.70
$2.90
$2.66
$2.73
$2.57
$2.40
$2.25
$2.10
$2.20
$1.80
$1.50
Value of Breville Shares
Value of the Offer
(controlling basis)
(if GUD acquires 50.1% of Breville)
High value
Value of the Offer
(if GUD acquires
100% of Breville)
Low value
In relation to synergies, the Independent Expert notes that:
“The level of synergies anticipated to be realised if the Offer is successful at 100% are significant”
■■
“Given the size of the expected synergies and that they are available to more than one potential buyer
(assuming all of Breville’s Shares are able to be acquired), PwC Securities considers that Breville
Shareholders should be entitled to receive 50% of the assessed synergy value in considering the
standalone value of Breville on a controlling basis”
A full copy of the Independent Expert’s Report is included in Annexure B of this Target’s Statement.
You should read this report carefully.
■■
6
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
2
Your Board believes that GUD is not offering
enough for Breville
Your Board has had regard to the operations, expected future earnings, growth prospects and risk profile
of Breville. Your Board has also considered the potential benefits which Breville can deliver to GUD.
Having considered these matters, your Board believes that GUD is not offering enough for Breville.
■■
GUD is not offering enough for the strategic value that Breville can
deliver to GUD
In GUD’s 2008 annual general meeting, Ian Campbell, Managing Director of GUD, said that the single
biggest challenge for GUD is achieving growth. He indicated that GUD may undertake further acquisitions
in the future to achieve such growth.
Your Board believes that an acquisition of Breville would provide GUD with the growth it has been seeking
and a number of strategic benefits.
GUD has indicated in its Bidder’s Statement that, depending on the extent to which Breville is controlled by
GUD, acquiring Breville may improve the overall product range offering to customers, increase the scale of
the combined businesses, and may also provide further avenues for growth in international markets.
7
Target’s Statement
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
Strengthened brand portfolio
An acquisition of Breville would transform GUD into a leading Australasian branded product distribution
company.
Breville has an attractive portfolio of brands and is well positioned in both Australia and New Zealand.
Importantly, Breville also has a growing presence in the North American market.
Breville’s small appliance brands in Australia and New Zealand are highly regarded and designed to satisfy
customers at a variety of price points.
Brand
Key products
Key markets
Kettles, coffee machines, juicers,
toasters, sandwich presses,
food processors, blenders
Australia / New Zealand
North America
Food preparation, toasters, kettles,
vacuum cleaners, electric heaters
Australia / New Zealand
Slow cookers, juicers,
sandwich makers and food
preparation products
Australia / New Zealand
Heating and cooling products
Australia
Personal care and garment care
Australia / New Zealand
Single cup coffee
Canada
Cookware
North America
(licensed)
(licensed)
(licensed)
Breville holds the exclusive licences to distribute Philips personal care and garment care products in
Australia and New Zealand, Keurig in Canada and Scanpan in North America.
Enhanced product development capabilities
Breville has leading product development and innovation capabilities with its research and development
facility based in Sydney, Australia.
An acquisition of Breville would enable GUD or any other buyer to leverage Breville’s strength in innovation
and design. Breville has received design awards both in Australia and internationally. These awards
8
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
include Australian Design Awards (ADA) (Standards Australia); 2008 Australian Design Mark for the BBL800
Professional 800 Collection™ Blender, BTA820 & BTA840 Professional 800 Collection™ Toaster and BKT500
ikon™ Toaster & Kettle, the 2008 International Housewares Association, New York - Best In Category Kitchen
Electrics and Best of Industry for the BBL800 Professional 800 Collection™ Blender and the 2008 German
iF Design GOLD Award for the BES820 Professional 800 Collection™ Espresso Machine 1.
Enlarged scale
An acquisition of Breville also provides GUD with increased scale and size. Breville would also provide
GUD with greater contribution from its consumer products business.
The relative contribution from GUD’s water, automotive and security industrial businesses would drop
significantly and earnings from what your Board considers to be the more attractive consumer household
goods and appliances business would increase.
Y2009A Sales
GUD’s business mix based on FY2009A Sales
GUD
2%
14%
9%
100%
55%
55%
76%
17%
17%
Security products
Without Breville
1%
26%
26%
Water products
With Breville
Without Breville
2%
GUD’s geographic covera
Consumer products
Automotive products
Water products
Security products
Australia/NZ
Expanded geographic coverage
Breville has invested extensively in establishing its international operations, predominantly in North
America and is continuing to establish its distribution arrangements in Asia (most recently China), the
Middle East, South Africa and South America. In contrast, GUD’s Sunbeam business only distributes its
products in Australia and New Zealand. Breville would provide GUD with an international business and
better position it to capitalise on international expansion opportunities, by leveraging its increased scale,
product and market expertise.
Breville owns a portfolio of brands in Australia and New Zealand. Additionally, Breville owns the Breville
brand in North America. Breville also holds the licence to distribute a number of brands in Australia,
New Zealand and North America. In contrast, GUD does not have rights to use the Sunbeam brand
outside Australia and New Zealand and is therefore prevented from using its Sunbeam brand to expand
internationally. GUD has indicated it intends to use Breville’s established distribution capability to review
opportunities to accelerate growth in international markets, in particular North America.
Note:
1. Page 7, 2008 Annual Report, Housewares International Limited.
9
Target’s Statement
1 K ey reasons for your Board’s recommendation to reject GUD’s Offer
n FY2009A Sales
GUD’s geographic coverage based on FY2009A Sales
With Breville
Without Breville
With Breville
1%
4%
14%
17%
9%
100%
79%
76%
Water products
Security products
■■
Australia/NZ
North America
Rest of World
GUD is not offering enough for the significant synergies which might
be realised from 100% ownership of Breville
Your Board believes it is important to understand the very significant value of synergies which might be
realised from GUD’s 100% ownership of Breville. Further, your Board believes that GUD is not the only
party which could realise significant synergies from owning Breville. The value of synergies should be
taken into account in deciding whether GUD’s Offer is adequate. Despite having been requested to do
so, GUD has not disclosed the synergies it expects would be generated from a combination of GUD
and Breville.
Breville has conducted a review of the potential synergies that may be generated from a party’s 100%
ownership of Breville and believes these include:
(i) Elimination of Breville’s public company costs;
(ii) Rationalisation of common management functions;
(iii) Reduced freight expenses;
(iv) Procurement savings;
(v) Reduced warranty expenses; and
(vi) Contribution margin from additional sales.
Although the mix varies depending on the identity of any potential buyer of Breville, your Board believes
that there are a number of such potential buyers who could realise cost and volume synergies in the range
of $20– $30 million per annum if they acquired 100% of Breville. Your Board believes that a combination
of Breville and GUD could generate earnings synergies of $20– $25 million per annum if GUD acquires
100% of Breville.
According to the Independent Expert’s Report, the value of the potential synergies which Breville
Shareholders are entitled to is between $0.59 and $0.64 per Breville Share.
Your Board expects that GUD’s 100% ownership of Breville will deliver a significant increase in GUD’s
profitability through both cost savings and additional sales volume.
Your Board does not believe that GUD’s Offer adequately compensates Breville Shareholders for the
significant synergies which might be realised if GUD acquires 100% ownership of Breville.
10
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
■■
Breville has upgraded its expected earnings for the 2010 financial
year since GUD announced its Offer
Having laid the foundations for growth by restructuring its businesses and establishing its international
operations, Breville is currently trading above management’s expectations. On 10 November 2009, Breville
announced an upgrade to its expected earnings for the 2010 financial year.
Breville expects FY2010F Underlying Reported EBITDA to be $38.7 million, an increase of 10.2% from
average broker consensus estimates of $35.1 million as at 9 November 2009 being the date prior to
Breville’s trading update. Breville expects FY2010F Underlying Reported NPAT of $19.1 million, an increase
of 7.4% from average broker consensus estimates of $17.8 million as at 9 November 2009. On a pro forma
basis, excluding the impact of an onerous lease expense, FY2010F Pro forma EBITDA is expected to be
$41.1 million and FY2010F Pro forma NPAT is expected to be $20.8 million.
Following Breville’s upgrade, average broker consensus estimates for FY2010F EBITDA was $38.4 million
and NPAT was $19.1 million as at 12 November 2009.
FY2010F EBITDA ($m)
$45.0
41.1
38.7
$40.0
35.1
38.4
10.2%
$35.0
$30.0
$25.0
Broker consensus
(as at 9 November 2009)
Breville forecast
Underlying Reported
EBITDA
(November 2009)
Broker consensus
(as at 12 November 2009)
Breville forecast
Pro forma EBITDA
(November 2009)
FY2010F NPAT ($m)
$22.0
$18.0
20.8
17.8
7.4%
19.1
19.1
Breville forecast
Underlying Reported
NPAT
(November 2009)
Broker consensus
(as at 12 November 2009)
$14.0
$10.0
Broker consensus
(as at 9 November 2009)
Breville forecast
Pro forma NPAT
(November 2009)
The above should be considered having regard to the further information on Breville’s FY2010F earnings’
guidance provided in section 5 and the risks outlined in section 6.
The Ernst & Young Transaction Advisory Services Independent Accountant’s Report on the pro forma
FY2010F income statement is included in Annexure A of this Target’s Statement.
11
Target’s Statement
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
3
■■
The value of GUD’s Offer is uncertain
There is no cash component to GUD’s Offer
There is no cash component to GUD’s Offer. GUD is offering you only GUD Shares for your Breville Shares.
The value of GUD Shares, and therefore GUD’s Offer depends on (amongst other matters) the future prospects
of all of GUD’s businesses and the extent to which it can realise synergies between GUD and Breville.
■■
GUD has not provided adequate guidance on its future earnings or
prospects
GUD has only provided limited information about the future prospects of its businesses and, in particular,
has not provided any information about its expected FY2010F earnings despite being requested to do so.
In section 2.4 of the Bidder’s Statement, GUD stated that “GUD directors have concluded that forecast
financial information would be misleading to provide, as a reasonable basis does not exist for providing
forecasts that would be sufficiently meaningful and reliable as required by applicable Australian law, policy
and market practice”.
Given that GUD’s Offer Consideration for your Breville Shares is comprised entirely of GUD Shares, and that
Breville Shareholders may end up owning a substantial portion of GUD by accepting the Offer, your Board
is concerned that Breville Shareholders do not have sufficient information about GUD’s expected earnings
and prospects to make a fully informed decision about the Offer.
In addition, GUD has not disclosed the synergies it expects would be generated from a combination of GUD
and Breville if GUD acquired 100% ownership of Breville despite being requested to do so. It also has not
disclosed the amount of synergies (if any) which would be realised on acquiring control, but not 100%
ownership, of Breville.
■■
Value will depend on synergies realised
Given GUD’s Offer is conditional on achieving a relevant interest in at least 50.1% of Breville, GUD may
acquire control but not 100% ownership of Breville. For example, if Breville’s largest shareholder does not
accept GUD’s Offer, GUD will not be entitled to proceed to 100% ownership of Breville pursuant to the Offer.
If GUD is unable to acquire 100% ownership of Breville, your Board expects that minimal synergies will be
available and the full commercial benefits of the Offer will not be fully realised.
In that case, the value of GUD’s Offer Consideration is likely to be materially less than if GUD acquired
100% of Breville.
Breville has asked GUD to provide an estimate of potential synergies. GUD has not provided such information.
12
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
■■
GUD’s business mix is different to Breville’s business mix
Your current investment profile gives you full, direct exposure to a leading consumer household goods and
appliances business.
In FY2009A, 45% of GUD’s sales was generated by water, automotive and security industrial businesses.
In the same year, more than 50% of GUD’s EBIT 1 was generated by those businesses. In contrast, 100%
of Breville’s sales and EBIT were generated by its consumer household goods and appliances business.
Business mix based on FY2009A Sales
Breville
GUD’s business mix ba
GUD
Without Breville
2%
2%
26%
26%
100%
17%
17%
Consumer products
55%
55%
Automotive products
Water products
Security products
Consumer products
The nature of GUD’s operations, which expose the company to a broad range of industrial sectors, may
expose Breville Shareholders who accept GUD’s Offer to different growth prospects and different risks
compared to holding Breville Shares.
Note:
1. Based on segment EBIT excluding unallocated costs.
13
Automotive pro
Target’s Statement
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
4
Breville’s
largest shareholder has not indicated
whether it intends to accept GUD’s Offer
Whilst GUD has indicated that a number of Breville Shareholders support its Offer (in the absence of a
superior offer), many Breville Shareholders have not announced their intentions in relation to the Offer.
In particular, the Premier & Lew Interests, comprising Breville’s largest shareholder (Premier Investments
Limited) and other interests connected with the family of Mr Solomon Lew in aggregate control 30.34%
of Breville Shares. The Premier & Lew Interests have not announced their intentions in relation to GUD’s
Offer.
If the Premier & Lew Interests do not accept GUD’s Offer, GUD is unlikely to achieve the very significant
value of synergies which might be realised from 100% ownership of Breville. In addition, CGT rollover relief
will not be available and GUD will not be entitled to proceed to 100% ownership of Breville.
14
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
5
■■
UD might make a higher offer for Breville
G
in the future
If GUD is able to acquire control of Breville, it has a strong incentive
to acquire 100% ownership
Your Board believes that only limited synergies will be available if GUD owns less than 100% of Breville.
However, GUD believes that there will be enhanced synergies from combining GUD and Breville if GUD
acquires 100% ownership of Breville.
GUD has indicated that a number of Breville Shareholders (representing 28% of Breville’s Shares)
have indicated that they will accept GUD’s Offer in the absence of a superior offer. If these Breville
Shareholders ultimately accept GUD’s Offer and it becomes unconditional, GUD will hold a minimum of
47% of Breville Shares and have significant capital invested in Breville. There is a possibility that GUD will
acquire control but not 100% ownership of Breville.
If GUD acquires control of Breville under the current Offer your Board believes there will be a real incentive
for GUD to acquire 100% ownership of Breville.
■■
Rather than increasing its Offer Consideration, GUD may buy some
Breville Shares now under the current Offer, and pay more for the
remaining Breville Shares under another offer in the future
If GUD increased its Offer Consideration now, it would need to offer the increased price in respect of all
80.6% of Breville Shares that it does not currently hold, including the 28% of Breville Shares held by
Breville Shareholders who have already indicated that they will support the Offer (in the absence of a
superior offer).
If GUD acquires Breville Shares under the current Offer, and then returns with another offer in the future at
an increased price, it only needs to offer that increased price to the remaining Breville Shareholders.
The more Breville Shares GUD acquires under the current Offer, the higher GUD may be able to increase
its offer consideration under another offer in the future and, potentially, the more likely such an offer
may become.
However, there is no guarantee that GUD will make a higher offer in the future in the event it does not
acquire 100% of Breville Shares under its current Offer.
15
Target’s Statement
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
■■
Your Board believes GUD can afford to pay more to acquire 100%
of Breville than it is offering under the current Offer
Your Board believes that GUD can afford to pay substantially more than its current Offer for 100% of Breville
assuming the expected synergies are able to be realised. If GUD acquires 100% of Breville under the current
Offer and realises the expected synergies, your Board expects the transaction to be highly earnings per share
(EPS) accretive for GUD Shareholders in the first full year following the transaction.
EPS accretion is a common basis on which acquisitions are analysed. EPS accretion means that the
acquirer’s EPS after an acquisition is expected to be higher than it would have been if the acquisition did
not take place. It provides an indication of an acquirer’s capacity to pay. Commonly, acquisitions are not
EPS accretive in the first year after completion of an acquisition.
Based on the illustrative pro forma case set out below, it appears that GUD can offer you more than one
GUD Share for every four Breville Shares under the Offer and it will still be significantly EPS accretive for
GUD if GUD acquires 100% of Breville.
The illustrative pro forma analysis below is based on historical financial information – the results for the 12
months to 30 June 2009 for both Breville and GUD. The illustrative pro forma analysis includes
$25 million of synergies, being the upper end of the range of synergies estimated by Breville for a
combination of Breville and GUD.
Illustrative pro forma FY2009 GUD EPS accretion—GUD acquires 100% of Breville 1
$2.20
Pro forma GUD FY2009A
EPS pre transaction (cps)
Pro forma GUD FY2009A
EPS post transaction (cps)
Pro forma accretion (%)
Implied offer price per Breville Share 2
$2.50
$2.80
$3.10
$3.40
$3.70
61.7
61.7
61.7
61.7
61.7
61.7
80.5
77.3
74.3
71.6
69.0
66.7
30.4%
25.2%
20.4%
16.0%
11.8%
8.0%
Notes:
1. The analysis is illustrative and pro forma in nature and is provided so that Breville Shareholders are aware of the analysis of possible scenarios.
It is included to show an indication of the possible impact of an acquisition of 100% of Breville on GUD - it does not purport to forecast the precise
actual impact on GUD. See Annexure D for assumptions underlying this analysis.
2.Based on $8.80 per GUD share being the volume weighted average price (VWAP) of GUD Shares traded on ASX during the month ended
8 October 2009.
16
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
6
“Scrip for scrip” capital gains tax rollover relief may
not be available and Breville Shareholders will not
receive cash from GUD to pay any tax liability
Unless GUD becomes the owner of at least 80% of Breville Shares, Breville Shareholders will not be
entitled to “scrip for scrip” capital gains tax (CGT) rollover relief.
Whilst GUD has indicated that a number of Breville Shareholders support the Offer (in the absence of a
superior offer), as at the date of this Target’s Statement, Breville’s largest shareholder (which holds more
than 20% of Breville Shares) has not announced its intentions in relation to GUD’s Offer.
If Breville’s largest shareholder does not accept GUD’s Offer, CGT rollover relief will not be available.
Unless CGT rollover relief is available, Breville Shareholders who realise a capital gain as a result of
accepting GUD’s Offer may have a tax liability. There is no cash component in GUD’s Offer to pay any
such tax.
17
Target’s Statement
1 Key reasons for your Board’s recommendation to reject GUD’s Offer
7
■■
GUD’s Offer is conditional and not final
GUD’s Offer is subject to numerous conditions, including ACCC
approval
GUD’s Offer is subject to a number of conditions outlined in section 11.8 of the Bidder’s Statement and as
such is uncertain. Your Board believes that there is a risk that a number of GUD’s Offer conditions may not
be, or are incapable of being, satisfied. GUD’s Offer will lapse unless these conditions are either satisfied
or waived prior to the end of the Offer Period.
Importantly, GUD’s Offer is conditional on ACCC approval. As at the date of this Target’s Statement, the
ACCC has not yet given approval for GUD’s Offer to proceed.
Even if the ACCC does not prevent GUD from acquiring Breville Shares under the Offer, there is a risk that
the ACCC will impose conditions on, or require undertakings from, GUD in relation to the future operation
of GUD’s or Breville’s business. This may result in GUD withdrawing the Offer. Even if GUD waives its
right to withdraw the Offer, any conditions or undertakings required from the ACCC may affect the value of
Breville Shares and/or GUD Shares following completion of the Offer.
■■
GUD has not declared its Offer final
Given that GUD has not declared that its Offer is final, GUD is able to increase its Offer. Your Board
believes GUD is able to pay more to acquire 100% of Breville than it is offering under its current bid.
18
2Reasons why you might want
to accept GUD’s Offer
Whilst your Board intends to reject GUD’s Offer in relation to their own Breville Shares and unanimously
recommends Breville Shareholders also reject GUD’s Offer, some Breville Shareholders may wish to accept
the Offer. The reasons why Breville Shareholders may wish to accept the Offer include those set out
below.
■■
The Offer represents a significant premium to the Breville share price
prior to the announcement of GUD’s Offer
The GUD Offer of one GUD Share for every four of your Breville Shares represents an implied offer price
of $2.20 per Breville Share based on $8.80 per GUD Share being the volume weighted average price
(VWAP) of GUD Shares traded on ASX during the month ended 8 October 2009, being the date prior to the
announcement of GUD’s Offer. This represents a 51% premium to $1.46 per Breville Share being the VWAP
of Breville Shares traded on ASX during the month ended 8 October 2009.
Based on the closing share price of GUD Shares on 13 November 2009 of $8.72, this implies an offer price
of $2.18 compared to Breville’s closing share price of $2.28 on the same day.
■■
GUD has indicated that Breville Shareholders may benefit from
increased dividends per share
Breville has historically paid lower dividends per share than GUD.
GUD has paid fully franked dividends since September 2002. By contrast, Breville’s last three dividends
have been unfranked and as international earnings grow and Breville takes the benefit of accumulated
Australian tax losses, Breville is not expected to pay franked dividends in the short term.
Therefore, Breville Shareholders may receive increased dividends per share and increased franking if they
accept GUD’s Offer.
This assumes that GUD will maintain current dividend levels. However, GUD has only provided limited
information about the future prospects of its businesses and, in particular, has not provided any
information about its expected FY2010 earnings (or dividends).
■■
Trading in GUD Shares is more liquid than trading in Breville Shares,
which may become less liquid
Historically, trading in GUD Shares has had greater liquidity than trading in Breville Shares.
Over the twelve months prior to 8 October 2009, the average number of Breville Shares traded monthly
(excluding GUD’s acquisition of its 19.4% stake) as a percentage of the current Breville Shares on issue
was 1.2% compared with 5.1% for GUD.
As at 13 November 2009, the top four substantial shareholders collectively held more than 70% of
Breville’s Shares on issue (based on substantial holding notices filed with ASX).
If GUD increases its shareholding in Breville, but does not acquire 100% ownership, Breville’s “free float”
will be reduced and there is a risk that liquidity in the trading of Breville Shares on ASX will be further
reduced.
19
Target’s Statement
2 Reasons why you might want to accept GUD’s Offer
■■
If GUD controls, but does not own 100% of, Breville there are risks of
being a minority shareholder
Given GUD’s Offer is conditional on achieving a relevant interest in at least 50.1% of Breville, GUD may
acquire control (but not 100% ownership) of Breville. In this situation, Breville Shareholders who have not
accepted GUD’s Offer will be minority shareholders in Breville.
If GUD acquires control of Breville, it will be able to cast a majority of votes at a general meeting of Breville
and pass ordinary resolutions. GUD will be able to control:
(a) the composition of the Breville Board and senior management;
(b) Breville’s dividend policy and financing structure; and
(c) the strategic direction of Breville’s businesses.
However, minority shareholders in Breville would have rights in respect of conduct by the company or a
majority shareholder that is oppressive, unfairly prejudicial or unfairly discriminatory towards them.
In addition, if GUD acquires control but not 100% ownership of Breville, Breville will be controlled by its
major competitor in Australia. GUD has indicated in its Bidder’s Statement that it intends to replace the
majority of the Breville Board with nominees of GUD. While GUD has confirmed that it will comply with all
applicable laws, GUD has not explained how it will address this potential conflict of interest.
In particular, GUD has not explained or provided answers to the following important questions.
(a)How will GUD determine whether it is GUD or Breville that pursues opportunities that are attractive to
both companies?
(b)Will GUD maintain Breville’s current quality and quantity of research and development?
(c)In circumstances where GUD and Breville are pursuing, as referred to in section 6.4(b) of the Bidder’s
Statement, “mutual operational and financial benefits” through “potential partnership opportunities” how will those partnership opportunities be pursued without sharing information between competitors
that is commercially sensitive and how will any benefits be shared?
(d)Where GUD management are appointed to the Breville Board, and thereby incur duties to all Breville
Shareholders - how will these duties be reconciled with their roles as GUD managers, and their
obligations to GUD?
(e)How will GUD proceed with litigation between GUD and Breville, including the outstanding litigation
referred to in section 9.7 of this Target’s Statement?
20
2 Reasons why you might want to accept GUD’s Offer
■■
There is no certainty that GUD will increase its Offer Consideration or
make a higher offer in the future
Although GUD has not declared its current Offer to be final, there is no certainty that GUD will increase its
Offer Consideration. In addition, as at the date of this Target’s Statement, Breville is not aware of any party
intending to make an offer for Breville Shares which is higher than GUD’s Offer.
If GUD does not acquire 100% ownership of Breville there is no certainty that GUD will make a higher offer
in the future. In particular, if the Premier & Lew Interests do not accept the current Offer, the ability of
GUD to acquire 100% of Breville will depend heavily on the Premier & Lew Interests’ willingness to sell
and to sell at a price acceptable to GUD. The prospects, timing and terms of any offer in the future would
depend on the intentions of Breville’s current largest shareholder. In addition, the fewer shares which
GUD acquires under the current Offer the less able it might be to increase its price in a future offer and,
potentially, the less likely such an offer becomes.
■■
Breville’s share price may fall if GUD’s Offer does not succeed or if
GUD does not acquire 100% ownership of Breville
Following the announcement of GUD’s Offer to acquire Breville on 9 October 2009, the Breville share price
has increased significantly.
If GUD’s Offer does not succeed (and there is no other offer for your Breville Shares from a third party or
from GUD) the Breville share price may fall.
However, the movement in Breville’s share price will depend on numerous factors including, but not limited
to, Breville’s earnings, dividends, general economic and market conditions, liquidity and the potential
expectation of another offer emerging from GUD or another party.
21
Target’s Statement
3 What are your options?
As a Breville Shareholder you have three choices currently available to you.
■■
Option 1: Reject GUD’s Offer
Your Board has decided to reject GUD’s Offer in relation to their own Breville Shares. Your Board
unanimously recommends that you reject GUD’s Offer.
To reject GUD’s Offer, you do not need to do anything in relation to any documents received from GUD. In
making your decision you should consider the reasons for your Board’s recommendation, the reasons why
you might want to accept GUD’s Offer and the risk factors outlined in this Target’s Statement.
You should note that:
(a)if you choose not to accept GUD’s Offer and GUD acquires at least 90% of Breville Shares, GUD will
be entitled to compulsorily acquire Breville Shares that it does not already own, and GUD has said
that it intends to exercise those rights (refer to section 6.3 of the Bidder’s Statement for further
details); and
(b)if the conditions of the Offer are satisfied or waived (refer to section 11.8 of the Bidder’s Statement
for further details) and GUD acquires at least 50.1% but less than 90% of Breville Shares, Breville
Shareholders who do not accept GUD’s Offer will become minority shareholders in Breville (refer to
section 2 of this Target’s Statement for further details).
■■
Option 2: Sell your Breville Shares on ASX
During the Offer Period, you may sell your Breville Shares on ASX, provided you have not already accepted
GUD’s Offer for your Breville Shares (or, if you have accepted GUD’s Offer, provided you
have validly withdrawn that acceptance).
The latest trading price for Breville’s and GUD’s Shares may be obtained from ASX website at
www.asx.com.au
If you sell your Breville Shares on ASX:
(a)you will receive the consideration for that sale of your Breville Shares sooner than if you accept
GUD’s Offer while it is subject to conditions;
(b)you will lose the ability to accept GUD’s Offer and receive the Offer Consideration (and any possible
increase in the Offer Consideration) in relation to those Breville Shares;
(c) you will lose the ability to accept any superior proposal that might emerge;
(d) you will lose the opportunity to receive future returns from Breville;
(e) you may have to pay capital gains tax; and
(f) you may incur a brokerage charge.
22
3 What are your options?
■■
Option 3: Accept GUD’s Offer
Although your Board intends to reject GUD’s Offer in relation to their own Breville Shares and unanimously
recommends that Breville Shareholders also reject GUD’s Offer, some Breville Shareholders might want to
accept the Offer. You may choose to accept GUD’s Offer. In making your decision you should have regard
to your own circumstances. You should consider your Board’s reasons for their recommendation, the
reasons why you might want to accept GUD’s Offer and the risk factors which are set out in this Target’s
Statement.
GUD has stated that its Offer remains open until 7.00pm (Melbourne time) on 8 December 2009. It is
possible that GUD will choose to extend the Offer Period in accordance with the Corporations Act. If that
happens, GUD must file a notice of extension with ASX and will send that notice to you.
If, within the last seven days of the Offer Period:
(a) GUD varies the Offer to improve the Offer Consideration; or
(b) GUD’s voting power in Breville increases to more than 50%,
then the Offer Period will be extended automatically, so that the Offer Period ends 14 days after the
relevant event in accordance with section 624(2) of the Corporations Act.
If you accept GUD’s Offer and GUD’s Offer becomes unconditional you will receive one GUD Share for every
four of your Breville Shares.
■■
Foreign Shareholders
If you accept GUD’s Offer and you are a Foreign Shareholder, GUD has stated that it intends to offer you
cash consideration by issuing to a nominee the number of GUD Shares to which you would have otherwise
been entitled, and then arranging for the nominee to sell those GUD Shares on ASX as soon as practicable
in the manner, at the price, and on such other terms and conditions determined by the nominee. GUD
will then deduct brokerage and other sale expenses from the proceeds and remit the balance to you.
Refer to sections 11.6 and 11.7 of the Bidder’s Statement for further information.
23
Target’s Statement
4 Frequently asked questions
4.1 Who is GUD?
GUD is a company listed on ASX that is offering to purchase all of your Breville Shares. Refer to section 2
of the Bidder’s Statement for further details.
4.2 What is GUD offering for my Breville Shares?
GUD is offering to Breville Shareholders one GUD Share for every four Breville Shares. The Offer is GUD
Shares only. There is no cash component.
4.3 What choices do I have as a Breville Shareholder?
As a Breville Shareholder you have the choice to:
(a)to reject the Offer, in which case you do not need to do anything in relation to the documents received
from GUD. You will remain a Breville Shareholder, unless GUD proceeds to compulsory acquisition of
your Breville Shares;
(b)sell your Breville Shares on ASX, which may be at a higher or lower price than the Offer
Consideration. If you wish to sell your Breville Shares on ASX you should not accept the Offer and
should instruct your broker at the time you wish to sell; or
(c) accept the Offer for all of your Breville Shares.
Refer to section 3 for further details in relation to your choices as a Breville Shareholder.
Breville Shareholders should carefully consider your Board’s recommendation and other important issues
set out in this Target’s Statement prior to making any decision in relation to the Offer from GUD.
Your Board has decided to reject GUD’s Offer in relation to their own Breville Shares. Your Board
unanimously recommends that you reject GUD’s Offer.
4.4 What does your Board intend to do in relation to their Breville Shares?
Each Director intends to reject GUD’s Offer in relation to their own Breville Shares.
4.5 What does your Board recommend?
Your Board unanimously recommends that you reject the Offer.
The reasons for your Board’s recommendation are detailed in section 1.
If there is a change in this recommendation or any material developments in relation to the Offer, Breville
will lodge a supplementary Target’s Statement.
4.6 What should I do?
To follow your Board’s recommendation to reject the Offer, you do not need to do anything in relation to the
documents received from GUD. You do not need to fill in or send any documents to GUD.
You may wish to consult your legal, financial or other professional adviser in relation to any action that you
may wish to take in relation to the Offer and your Breville Shares.
24
4 Frequently asked questions
4.7 What does the Independent Expert say?
The Independent Expert, PwC Securities, has concluded that the Offer is neither fair nor reasonable.
The Independent Expert has assessed the value of:
(a)your Breville Shares to be between $2.73 and $2.90 per share on a controlling basis incorporating
50% of expected synergies; and
(b) GUD’s Offer Consideration to be:
(i) between $2.20 and $2.25 per Breville Share assuming 50.1% control of Breville; and
(ii) between $2.57 and $2.66 per Breville Share assuming 100% control of Breville.
The Independent Expert’s Report is included in Annexure B of this Target’s Statement.
4.8 How do I reject the Offer?
To reject the Offer you do not need to do anything in relation to any documents received from GUD. You do
not need to fill in or send any documents to GUD.
4.9 How do I accept the Offer?
To accept the Offer, you must follow the instructions in section 11.3 of the Bidder’s Statement.
4.10 When do I have to make a decision?
If you wish to accept the Offer, you must do this during the Offer Period. GUD has stated that the Offer
remains open until 7.00pm (Melbourne time) on 8 December 2009. It is possible that GUD may choose
to extend the Offer Period in accordance with the Corporations Act. In addition, the Offer Period may
be extended automatically in certain circumstances. Refer to section 11.2 of the Bidder’s Statement for
details of circumstances in which the Offer Period can be extended.
If you wish to follow your Board’s recommendation and reject the Offer, you do not need to do anything in
relation to the documents received from GUD.
4.11 What happens if GUD raises its Offer Consideration?
If GUD raises its Offer Consideration or introduces a cash component, your Board will carefully consider
the revised offer and advise you accordingly.
If GUD improves the Offer Consideration within the last seven days of the Offer Period, then the Offer
Period will be automatically extended so that the Offer Period ends 14 days after the announcement of the
improved Offer Consideration.
25
Target’s Statement
4 Frequently asked questions
4.12 If I accept the Offer and GUD raises the Offer Consideration, will I benefit
from any higher Offer Consideration?
If you have accepted the Offer and GUD increases its Offer Consideration under the current Offer, you will
receive the benefit of any higher Offer Consideration from GUD.
However, GUD is entitled to make a new offer for any outstanding Breville Shares after the Offer Period
closes. If GUD makes a higher offer after the close of the current Offer, you will not benefit from any
higher offer consideration if you have accepted GUD’s current Offer.
4.13What happens if I accept the Offer and a superior offer by a third party is
made for my GUD Shares after I accept?
If you accept the Offer, you may withdraw your acceptance at any time while the Offer remains conditional.
If the Offer becomes unconditional, you will be unable to withdraw your acceptance and therefore unable
to accept a superior offer by a third party.
Refer to section 11.5 of the Bidder’s Statement for details of the effect of acceptance.
4.14 Can I be forced to sell my Breville Shares?
You cannot be forced to sell your Breville Shares unless GUD proceeds to the compulsory acquisition of
Breville Shares. GUD will need to acquire at least 90% of Breville Shares (under the Offer or otherwise) in
order to exercise compulsory acquisition rights. If GUD acquires more than 90% of Breville Shares under
the Offer and proceeds to compulsory acquisition, then you will receive the same Offer Consideration as is
received by Breville Shareholders under the Offer.
4.15 What are the tax implications of accepting the Offer?
A general description of the taxation treatment for certain Australian resident Breville Shareholders
accepting the Offer is set out in section 8 of this Target’s Statement and section 9 of the Bidder’s
Statement. You should not rely on those descriptions as advice for your own affairs.
You should consult your taxation adviser for detailed taxation advice before making a decision as to
whether or not to accept the Offer for your Breville Shares. You may, for example, be liable for capital
gains tax.
4.16 Can I sell my Breville Shares on market?
You can sell your Breville Shares on market unless you have accepted the Offer in respect of your Breville
Shares (and have not validly withdrawn your acceptance). If you sell your Breville Shares on market you
will not benefit from any future increase in the Offer Consideration that may be provided by GUD.
4.17 What are the conditions to the Offer?
The Offer has a number of conditions. Full details of the conditions of the Offer are set out in section 11.8
of the Bidder’s Statement.
26
4 Frequently asked questions
4.18What happens if the conditions of GUD’s Offer are not satisfied or
waived?
If the conditions to GUD’s Offer are not satisfied or waived before the end of the Offer Period and the Offer
Period has not been extended, the Offer will lapse.
Even if you have accepted the Offer, if the Offer lapses, your acceptance of the Offer will be void and you
will be free to deal with your Breville Shares.
Where the Offer remains conditional, you may withdraw your acceptance at any time before the Offer
becomes unconditional (refer to section 11.5 of the Bidder’s Statement).
4.19 What happens if the conditions are satisfied or waived?
If the Offer becomes unconditional, you will receive the Offer Consideration from GUD in accordance with
sections 11.1 and 11.6 of the Bidder’s Statement.
4.20 When will I receive the Offer Consideration if I accept the Offer?
If you accept the Offer GUD has until the earlier of:
(a) if the Offer is unconditional, one month after you have accepted the Offer;
(b)if the Offer is conditional when you accepted the Offer, within one month after the Offer becomes
unconditional; and
(c) 21 days after the end of the Offer Period,
before ensuring that you receive the Offer Consideration.
4.21 How can I get updates on Breville’s and GUD’s share price?
You can receive updates by visiting ASX’s website at www.asx.com.au
4.22 Who should I call if I have any questions?
Breville has established a Breville Shareholder Information Line for Breville Shareholders in relation to
the Offer. The Breville Shareholder Information Line is 1800 207 622 and is available Monday to Friday
between 8.30am and 5.30pm (Melbourne time).
Announcements made to ASX by Breville and other information relating to the Offer can be obtained from
ASX’s website at www.asx.com.au or Breville’s website at www.brevillegroup.com.au
27
Target’s Statement
5Breville financial information
and forecasts
5.1 Introduction
5.2 Basis of preparation
This section contains the following financial
information (together, Pro forma Financial
Information) which Breville Shareholders should
have regard to when assessing their response to
GUD’s Offer:
(a)Pro forma historical income statement for the
year ended 30 June 2009;
(b)Pro forma forecast income statement for the
year ending 30 June 2010; and
(c)reconciliations of the pro forma historical
income statement and the pro forma forecast
income statement to the actual and forecast
reported statutory results.
The Pro forma Financial Information in this
section should be read in conjunction with the
risks described in section 6 and other information
contained in this Target’s Statement. Your
Board has appointed Ernst & Young Transaction
Advisory Services Limited as the Independent
Accountant to prepare a report in relation to the
Pro forma Financial Information. The Independent
Accountant’s Report on the Pro forma Financial
Information is included in Annexure A of this
Target’s Statement. Breville Shareholders should
note the scope and limitations of that report.
The pro forma forecast income statement should
be read in conjunction with the specific and
general assumptions upon which it is based
as detailed in sections 5.5, 5.6 and 5.7 and
sensitivities as detailed in section 5.9 and the
risks surrounding forward looking statements
as set out on the inside cover of this Target’s
Statement.
(a) Accounting policies
28
The Pro forma Financial Information has been
prepared on the basis of the accounting policies
consistent with those set out in Breville’s annual
report for the year ended 30 June 2009 on pages
30 – 40, except as noted below.
(i)The Pro forma Financial Information in this
section is presented in an abridged form
and does not contain all of the disclosures
that would be required to be presented in
an annual report in accordance with the
Corporations Act.
(ii)Breville notes that under a new accounting
standard, it expects its segment reporting
disclosure to change for the 6 months to
31 December 2009. The segment reporting
contained in the Pro forma Financial
Information in this section has been prepared
based on the segments reported for the year
ended 30 June 2009.
(iii)The pro forma adjustments detailed in
section 5.2(d) below.
(b) Pro forma historical income statement
The pro forma historical income statement for
the year ended 30 June 2009 has been prepared
based on the audited statutory income statement
of Breville for the year ended 30 June 2009,
adjusted for the pro forma adjustments detailed in
section 5.2(d) below.
A reconciliation of the pro forma historical income
statement for the year ended 30 June 2009 to the
audited statutory income statement is provided in
Table 5.
5 Breville financial information and forecasts
(c)Pro forma forecast income
statement
The pro forma forecast income statement for the
year ending 30 June 2010 has been prepared on
the following basis:
(i)actual unaudited results in local functional
currency for the three months to 30
September 2009 plus forecast for the
remaining nine months ending 30 June 2010;
(ii)translation of unaudited actual local
functional currency financial results into
Australian dollars for the three months to
30 September 2009 at the weighted average
foreign exchange rates for that period plus
assumed foreign exchange rates for the
remaining nine months ending 30 June 2010
set out in Table 4;
(iii)an assessment of the forecast results for
the remaining nine months ending 30 June
2010 based on the Directors’ best estimate
assumptions, detailed in sections 5.5, 5.6
and 5.7, which take into account current
economic and operating conditions;
(iv)tax has been calculated taking into account
the statutory income tax rates and historical
effective tax rates of each jurisdiction; and
(v)adjustments made for the pro forma
adjustments detailed in section 5.2(d) below.
The pro forma forecast income statement,
including the Directors’ best estimate assumptions
on which it is based, and the sensitivity to
changes in certain key assumptions, has been
prepared by Breville management and adopted by
the Directors.
A reconciliation of the pro forma forecast income
statement for the year ending 30 June 2010 to the
forecast statutory income statement is provided in
Table 5.
(d) Pro forma adjustments
The statutory financial information has been
adjusted by the following items which are assumed
to be either non-recurring or non-trading in nature:
(i)exclusion of an onerous lease expense
relating to onerous lease obligations to which
Breville is a party as these are considered
to be non-trading in nature. Refer to section
5.6(c) for further information;
(ii)exclusion of one-off redundancy costs as
these are considered to be non-recurring in
nature;
(iii)exclusion of costs related to the response
to GUD’s Offer as these are considered to
be non-recurring in nature. Refer to section
5.6(f) for further information; and
(iv)exclusion of non-cash, non-trading unrealised
mark-to-market amounts, specifically net
foreign exchange gains/(losses) and interest
rate swap gains/(losses).
29
Target’s Statement
5 Breville financial information and forecasts
5.3 Breville summary pro forma income statement
The pro forma historical income statement for the year ended 30 June 2009 and the pro forma forecast
income statement for the year ending 30 June 2010 are summarised in Table 1.
Table 1: Pro forma historical and forecast income statement
1
Pro forma
historical 2
FY2009
Pro forma
forecast 3
FY2010
Growth (%)
Group sales revenue
431.9
421.7
(2.4)%
Pro forma EBITDA
35.6
41.1
15.5%
Margin (%)
8.2%
9.8%
Depreciation & amortisation
(6.5)
(7.4)
12.6%
Pro forma EBIT
29.1
33.8
16.2%
6.7%
8.0%
nm 5
(5.6)
(5.3)
(6.2)%
Pro forma profit before tax
23.5
28.5
21.5%
Income tax expense
(6.2)
(7.7)
23.9%
Pro forma net profit after tax
17.2
20.8
20.7%
Post tax impact of onerous lease
(1.4)
(1.7)
nm
5
Post tax impact of redundancy costs, foreign exchange
gains/(losses) and interest rate swap gains/(losses)
(4.1)
0.7
nm
5
Reported net profit after tax
11.8
19.8
($m)
Margin (%)
Finance costs, net
4
nm 5
6
68.4%
Notes:
1. Some totals, margins and growth rates may be impacted by rounding. Bracketed amounts represent expenses or negative amounts in the case of
growth.
2. A reconciliation of the pro forma historical income statement for the year ended 30 June 2009 to the audited financial income statement is provided
in Table 5.
3. A reconciliation of the pro forma forecast income statement for the year ending 30 June 2010 to the forecast statutory income statement is provided
in Table 5.
4. Excludes the effect of non-trading, non-cash mark-to-market interest rate swap gains/(losses) .
5. Calculation is not meaningful.
6. Excludes forecast takeover response costs detailed in section 5.6(f).
30
5 Breville financial information and forecasts
Table 2: Geographic segments
1
Pro forma
historical
FY2009
Pro forma
forecast
FY2010
Growth
(%)
211.9
224.1
5.7%
New Zealand
30.9
27.5
(11.0)%
Asia
35.7
31.4
(12.1)%
North America
153.4
138.7
(9.6)%
Group sales revenue
431.9
421.7
(2.4)%
22.1
23.7
7.3%
1.2
1.2
2.8%
11.2
10.0
(10.3)%
1.4
8.5
520.3%
(0.2)
(2.3)
nm
35.6
41.1
15.5%
($m)
Group sales revenue
Australia
Pro forma EBITDA
Australia
New Zealand
Asia
North America
Unallocated
2
Pro forma EBITDA
3
Notes:
1. Some totals, margins and growth rates may be impacted by rounding. Bracketed amounts represent expenses or negative amounts in the case of growth.
2. Includes Breville’s short term incentive program.
3. Calculation is not meaningful.
5.4Commentary on the pro forma
forecast
Group sales revenue for FY2010 (in Australian
dollars (AUD)) is forecast to decrease by 2.4%
from FY2009, adversely impacted by higher foreign
currency translation rates and by the impact of
exiting most of the non-electrical homewares
business in the United States of America (US). On
a continuing business and constant currency basis,
Group sales revenue is forecast to increase 4.5%
from FY2009.
Sales revenue in Australia is forecast to increase
5.7% from FY2009, driven by sales growth
in Breville’s two largest brands, Breville and
Kambrook. Following the strong growth achieved in
Australia in FY2009, further sales revenue growth is
forecast, driven by a strong pipeline of new product
launches and the clear market positioning across
Breville’s portfolio of brands.
Sales revenue in New Zealand for FY2010 (in AUD) is
forecast to decrease by 11.0% from FY2009 due to
continuing difficult trading conditions and the adverse
impact of higher foreign currency translation rates.
Sales revenue (in New Zealand dollars) for FY2010 is
forecast to decrease by 9.3%.
Sales revenue from the Asia segment for FY2010 (in
AUD) is forecast to decrease by 12.1% on FY2009
due to the adverse impact of higher foreign currency
translation rates. Sales revenue for FY2010 (in Hong
Kong dollars) is forecast to increase by 4.8%, driven
by emerging improved economic and retail conditions
in Europe, which has resulted in a strengthening of
the forward order position of the export business
over recent months.
Sales revenue in North America for FY2010
(in AUD) is forecast to decrease by 9.6% from
FY2009. Sales revenue in the US for FY2010
(in USD) is forecast to decrease by 6.6% from
FY2009, reflecting the exit of most of the non-
31
Target’s Statement
5 Breville financial information and forecasts
electrical US homewares business. In the core
electrical business in the US, sales revenue
growth for FY2010 (in US dollars) is forecast to
increase by 13.1% from FY2009. In Canada, sales
revenue growth for FY2010 (in Canadian dollars)
is expected to increase 26.9% from FY2009,
underpinned by the continued success of the
exclusive distribution agreement with Keurig.
Breville Pro forma EBITDA for FY2010 (in AUD) is
forecast to increase 15.5% from FY2009. Excluding
the impact of adverse movements in foreign
currency translation rates, Breville Pro forma
EBITDA growth (in AUD) in FY2010 would be higher.
Pro forma EBITDA in Australia is forecast to
increase by 7.3% from FY2009, driven by
continuing sales growth and a positive change
in sales mix due to the strong pipeline of new
product launches.
Pro forma EBITDA in New Zealand (in AUD) is
forecast to increase by 2.8% from FY2009, with
benefits flowing from the changes in product
assortment and cost restructuring undertaken
in the latter part of FY2009. These changes are
expected to assist in mitigating continuing soft
retail trading conditions in New Zealand.
Pro forma EBITDA in Asia (in AUD) is forecast to
decrease by 10.3% from FY2009 driven by adverse
movements in foreign exchange translation rates.
Pro forma EBITDA in Asia for FY2010 (in Hong
Kong dollars) is forecast to increase by 8.7% from
FY2009, as a result of expected improvements in
economic conditions in Europe and the emerging
improvement in forward orders being placed by the
business’ major customers.
Pro forma EBITDA in North America (in AUD) for
FY2010 is forecast to increase significantly from
FY2009, driven by the benefits resulting from the
rationalisation of the non-electrical homewares
business in North America together with cost
restructuring undertaken in FY2009. Pro forma
EBITDA growth in FY2010 is anticipated by further
leveraging Breville’s existing distribution platforms
with strong new product launches and broader
product penetration within the business’ existing
customer base.
32
5.5Key assumptions underlying
the pro forma forecast income
statement
The forecast Pro forma Financial Information for
Breville is based on a number of assumptions
concerning future events, including the key
assumptions outlined below. Breville has prepared
the forecast pro forma income statement with
proper care and attention and considers all
assumptions to be reasonable, when taken as a
whole. However, the forecast Pro forma Financial
Information is likely to vary from actual results and
any variation may be material because forecasts,
by their very nature, are subject to uncertainties
and contingencies, many of which are outside the
control of Breville and which may, amongst other
things, result in the assumptions on which the
forecasts are based being inaccurate concerning
future events.
The pro forma forecast income statement and
other forward looking statements do not constitute
a representation that future profits (or any
other matter) will be achieved, either at all or
in the amounts or by the dates indicated. Such
information is presented for illustrative purposes
only as a guide to assist Breville Shareholders
in considering the Offer. The pro forma forecast
income statement and other forward looking
statements are based on the information available
to Breville at the date of this Target’s Statement.
If GUD acquires control of Breville and changes
the composition of the Board of Breville, that
new Board may look to change the way in
which Breville operates from that contemplated
in producing the pro forma forecast income
statement resulting in actual results which could
be above or below the pro forma forecast income
statement.
Breville Shareholders are advised to review
the assumptions, sensitivities and risk factors
detailed in this Target’s Statement and make their
own assessment of the future performance and
prospects of Breville. No party guarantees the
future performance of Breville.
5 Breville financial information and forecasts
5.6 Specific assumptions
(a) Sales revenue
The sales revenue growth assumptions from
FY2009 to FY2010 in local functional currency are
set out below in Table 3.
Table 3: Sales revenue growth assumptions
in local functional currency
Australia
New Zealand
Asia
United States
Canada
Functional
currency
AUD
NZD
HKD
USD
CAD
Sales revenue
growth
assumption (%)
5.7%
(9.3)%
4.8%
(6.6)% 1
26.9%
Note:
1. Sales revenue growth (in USD) for the core US electrical business
is forecast to be 13.1% on FY2009A.
The onerous lease expires in June 2019 and under
this lease, Breville is required to pay annual lease
payments plus outgoings. Breville is entitled,
subject to the approval of the landlord, to sub-let
the premises and in that case would earn income
on the premises. During FY2009, Breville sub-let
parts of the property at various times during the
year. The premises are currently mostly vacant
and the pro forma forecast income statement
assumes that there is no income from sub-leasing.
However, Breville is continuing to look for subleasing opportunities for this property.
The onerous lease payments have been excluded
for the purposes of providing the Pro forma
Financial Information as the onerous lease
payments represent the lease cost of a property
in Port Melbourne, Victoria which is surplus to
Breville’s requirements. A reconciliation of Pro
forma Financial Information to the historical and
forecast reported results is provided in Table 5.
(b) Operating costs
(d) Foreign exchange
Breville’s operating costs comprise primarily
the following expense categories: cost of goods
sold, freight, employee, marketing, occupancy,
administration and other expenses.
Breville’s primary exposure to foreign exchange is
set out below:
(i)Procurement costs denominated in
foreign currency
Operating cost assumptions are based on unaudited
actual results in local functional currency for the
three months to 30 September 2009 plus forecast
operating results in local functional currency for the
remaining nine months ending 30 June 2010 (refer
to section 5.6(d) below for further details on the
translation into Australian dollars). The assumptions
have regard to the most recent costs incurred,
known expense growth as a result of contractual
arrangements, forecast sales revenue consistent
with the pro forma forecast income statement and
planned expenditure.
Breville sources the majority of its product from
China, with these purchases being denominated in
US dollars. As a result, changes in the AUD:USD,
NZD:USD and CAD:USD exchange rates have a direct
impact on the cost of goods purchased, the effect
of which is partially offset by Breville’s US dollar
denominated revenue (see below for further detail).
The pro forma forecast income statement does
not include any expenses associated with the
response to GUD’s Offer.
(c) Onerous lease
Breville is a party to an onerous lease obligation
in relation to a property in Plummer Street, Port
Melbourne, Victoria. The onerous lease obligation
has arisen as a result of Breville’s sale of its
Australian homewares business in March 2007.
In order to reduce Breville’s exposure to these
movements on the cost of goods purchased, Breville
adopts a hedging policy that is designed to mitigate
the impact of foreign exchange uncertainty through
the use of forward foreign exchange contracts and
foreign currency options.
As at the date of this Target’s Statement, Breville has
hedged or has certainty over approximately 46% of
its forecast net US dollar denominated procurement
(Net USD Exposure) for the remaining period of
FY2010 at an effective rate of 0.78 AUD:USD.
Breville’s Net USD Exposure is based on the forecast
sales revenue consistent with the pro forma forecast
33
Target’s Statement
5 Breville financial information and forecasts
income statement and relates primarily to AUD:USD
denominated procurement.
(ii)Translation of local functional currency
into Australian dollars
Breville has operations across various jurisdictions
and participates in transactions denominated
in various currencies. The financial results of
those operations are required to be translated
into Australian dollars for presentation in the
consolidated financial statements. As a result,
changes in exchange rates have an impact on
the AUD value of revenue, expenses, assets
and liabilities consolidated in Breville’s results.
Breville’s primary foreign exchange translation rate
exposure is from US dollars, New Zealand dollars,
Canadian dollars and Hong Kong dollars.
The translation of Breville’s Pro forma Financial
Information contained in this section is consistent
with Breville’s accounting policies. The pro forma
forecast income statement translates results for
the three months to 30 September 2009 at the
weighted average foreign exchange rates for that
period plus assumed foreign exchange rates for the
remaining nine months ending 30 June 2010 set out
in Table 4.
Table 4: Assumed foreign exchange translation
rates for the remaining nine months ending
30 June 2010
Assumed foreign
exchange rate
Functional
(AUD to local
currency
currency)
New Zealand
NZD
1.25
Asia
HKD
7.00
United States
USD
0.90
Canada
CAD
0.95
(e) Interest rate swap gains/(losses)
The non-trading, non-cash mark-to-market
interest rate swap gains/(losses) for the
remaining nine months ending 30 June 2010 have
been forecast based on the current interest rate
expectations as at November 2009.
(f) Takeover response costs
The costs incurred and to be incurred by Breville in
34
relation to its response to GUD’s Offer have not been
included in the pro forma forecast income statement
as these are considered to be non-recurring costs.
However, the reported results of Breville for FY2010
will include costs associated with this response.
The total transaction costs depend on various
factors, including the outcome of GUD’s Offer, the
duration of the Offer, required response activities,
and the complexity of the issues to be addressed
in the response process. Therefore, it is difficult to
estimate the likely total cost to Breville, however, as
at the date of this Target’s Statement, the Directors
currently estimate the total costs to be between
$4.4 million and $6.9 million (excluding GST).
5.7 General assumptions
Set out below are the general assumptions that
have been adopted in preparing the pro forma
forecast income statement for the year ending
30 June 2010:
(a)no significant change in the economic
conditions or consumer sentiment in
Australia, New Zealand, Asia, Europe and
North America from those which prevail at
the date of this Target’s Statement;
(b) retention of key personnel;
(c) no material acquisitions or disposals;
(d)no material industrial disputes or other
disturbances, environmental costs or legal
claims, and no material disruptions to the
operations of Breville’s various suppliers
in China;
(e)no significant change in the legislative
regimes and regulatory environments in
the jurisdictions in which Breville or its key
customers or suppliers operate;
(f)no changes in accounting standards or
other mandatory professional reporting
requirements or the Corporations Act which
would have a material effect on Breville’s
financial performance;
(g)no material beneficial or adverse effects
arising from the actions of competitors;
(h)no material adverse changes to Breville’s
offshore product sourcing capabilities and
costs;
5 Breville financial information and forecasts
(i)no significant amendment to any significant agreement or arrangement relating to Breville’s
businesses. The parties to those agreements and arrangements are assumed to continue to comply
with the terms of all significant agreements and arrangements;
(j)no material change to the way in which Breville operates its business as a result of a change of
control (refer to section 9.6); and
(k)no impacts on contractual arrangements from changes in control (refer to section 9.6), specifically,
no changes to interest rate margins and other financing costs as a result of a change of control.
5.8 Reconciliations
A reconciliation of pro forma financials to underlying reported financials and statutory reported financials
is set out in Table 5 below.
Table 5: Reconciliation of pro forma to Reported financial information 1
Pro forma
historical
FY2009
35.6
(2.0)
33.6
Pro forma
forecast
FY2010
41.1
(2.5)
38.7
(3.6)
30.0
(0.0)
38.6
Pro forma EBIT
Net onerous lease expense
Underlying Reported EBIT
Pre tax impact of redundancy costs and non-trading
foreign exchange gains/(losses)
Statutory Reported EBIT 2
29.1
(2.0)
27.1
33.8
(2.5)
31.3
(3.6)
23.4
(0.0)
31.3
Pro forma PBT
Net onerous lease expense
Underlying Reported PBT
Pre tax impact of redundancy costs, non-trading
foreign exchange gains/(losses) and interest rate swap
gains/(losses)
Statutory Reported PBT 2
23.5
(2.0)
21.5
28.5
(2.5)
26.0
(5.8)
15.6
1.0
27.0
17.2
(1.4)
15.9
20.8
(1.7)
19.1
(4.1)
11.8
0.7
19.8
($m)
Pro forma EBITDA
Net onerous lease expense
Underlying Reported EBITDA
Pre tax impact of redundancy costs and non-trading
foreign exchange gains/(losses)
Statutory Reported EBITDA 2
Pro forma NPAT
After tax impact of net onerous lease expense
Underlying Reported NPAT
After tax impact of redundancy costs, non-trading
foreign exchange gains/(losses) and interest rate swap
gains/(losses)
Statutory Reported NPAT 2
Notes:
1. Some totals, margins and growth rates may be impacted by rounding. Bracketed amounts represent expenses.
2. Excludes forecast takeover response costs discussed in section 5.6(f).
35
Target’s Statement
5 Breville financial information and forecasts
5.9 Pro forma forecast income statement sensitivity analysis
The pro forma forecast income statement is sensitive to variations in the assumptions used in its
preparation. The table below summarises the sensitivity of forecast Pro forma EBITDA to variations
in a number of key assumptions, although other sensitivities may exist. These sensitivities have been
determined by reference to the potential impact of each sensitivity, in isolation, on Breville’s forecast Pro
forma EBITDA for the period 1 October 2009 to 30 June 2010.
Table 6: Pro forma forecast FY2010 EBITDA sensitivity analysis
Sensitivity
Impact on pro forma forecast
EBITDA FY2010
+/- 1% change in sales revenue
Increases/decreases by $0.8m
+/- 1c change in US dollar exchange rate on group USD
unhedged inventory purchase exposure
Increases/decreases by $0.5m
+/- 1c change in foreign exchange rates used for translation of
non AUD trading performance into AUD
Decreases/increases by $0.2m
Care should be taken in interpreting these sensitivities. These sensitivities treat each movement in the
variables in isolation whereas, in reality, the movements could be interdependent, impacted by market
reaction and Breville may take corrective action. The effects of movements may offset each other or may
be aggregated. The effects on forecast Pro forma EBITDA presented for each sensitivity in isolation are
not intended to be indicative or predictive of the likely range of outcomes that may occur with respect to
each sensitivity.
36
6 Risk factors
There are a number of risks, both company
specific to Breville and general investment risks,
which may materially and adversely affect the
future operating and financial performance and
financial condition of Breville and the value of
Breville Shares and which you should be aware of
in considering your Board’s recommendation and
this Target’s Statement.
Many of these risks are outside the control of Breville
and the Breville Board. There can be no certainty
Breville will achieve its stated objectives or that any
forward looking statements will eventuate.
This section describes risks associated with
Breville Shares and risks which are relevant
to your consideration of GUD’s Offer and your
Board’s recommendation. The Pro forma
Financial Information in section 5 should be read
in conjunction with this section and sets out a
number of assumptions on which the pro forma
forecast income statement is based and factors
which may influence Breville’s actual performance.
Breville Shareholders should note that the list of
risks in this Target’s Statement is not exhaustive.
Breville Shareholders should read this Target’s
Statement in its entirety and carefully consider the
following risk factors.
6.1 Specific risks
(a) Competitive environment
The Australian, New Zealand, US, Canadian and
European small electrical appliance markets are
highly competitive with a large number of market
participants and few barriers to entry.
Although Breville has demonstrated an ability to
compete effectively in these markets, there can be
no assurance that the actions of Breville’s existing
or new competitors or changes in consumer
preferences will not have a material adverse effect
on Breville’s performance.
(b) Brand recognition
Breville has a number of well known consumer
electrical brands, including Breville, Kambrook,
Ronson and Goldair. While Breville invests in
product innovation, brand excellence and people
development, Breville’s success in each of its
brands depends upon Breville’s ability to identify
and respond to consumer trends and to develop
innovative products that are relevant to consumers
and easy to use.
If Breville misjudges consumer trends or fails
to sell stock at anticipated prices, lower sales
and lower margins could result. In addition,
customers’ perceptions that one or more of
Breville’s brands is no longer able to offer reliable
products and affordable prices may also adversely
impact the reputation of Breville’s brands.
(c) Supply chain and manufacturing costs
Breville depends on a reliable supply chain that
allows it to procure and deliver products and meet
the demands of an international business. The
efficiency of Breville’s supply chain management
assists in managing inventory levels and the
reliability of delivery to customers. Disruption to
any aspect of Breville’s supply chain could have
a material adverse effect on its operational and
financial performance.
In addition, material increases in production and
manufacturing costs could lead to higher costs
and therefore adversely impact Breville’s gross
margins.
(d) Foreign exchange rates
Breville has transactional and translational
currency exposures. The majority of Breville’s
inventory purchases from suppliers are
denominated in US dollars. Other foreign
exchange risk arises due to future commercial
transactions. In addition, as a result of Breville’s
investment in its overseas operations, Breville’s
financial performance may be significantly
affected by adverse movements in the exchange
rates of the jurisdictions it operates within.
Due to the potential volatility of exchange rates,
Breville cannot reliably predict the impact of
exchange rates on future operating results. While
Breville engages in foreign exchange hedging to
manage transactional foreign currency exposure,
movements in exchange rates may have a material
impact on the operating results of Breville in the
future.
37
Target’s Statement
6 Risk factors
(e) Loss of key personnel
Breville’s success depends to a large extent on
its key personnel who play an important role in
the business, in particular its senior management
team.
Whilst efforts are made to retain the services of
key employees, the loss of key personnel could
have a material adverse effect on Breville’s
earnings or growth prospects.
Breville may not be able to recruit replacements
within a short timeframe.
(f) Interest rates
Breville, as a borrower of money, is potentially
exposed to adverse interest rate movements
that may increase the financial risk inherent in
its business. Any material change to current
borrowing arrangements may adversely impact
Breville’s future profitability.
There is a risk that upon a change of control of
Breville, Breville will be required to refinance its
ANZ facilities. If this occurs, Breville may not be
able to obtain finance, or may be required to pay
additional fees or increased margins in order to be
able to obtain such finance.
In order to protect against rising interest rates,
Breville has entered into an interest rate swap
contract under which it has a right to receive
interest at variable rates and to pay at fixed rates.
Furthermore, as noted in section 6.2, interest
rates may also affect the level of consumer
spending and therefore an increase in interest
rates could be expected to have a negative impact
on Breville and its operating results.
(g) Expansion plans
Breville’s international strategy is important for its
future growth. Breville’s revenue and profitability
is linked to growth into new countries and
improving penetration of existing markets. Breville
has continued to develop its retail penetration in
North America and has expanded its distribution
in the branded electrical business in Asia (most
recently in China), the Middle East, South Africa
and South America.
38
Breville’s expansion is dependent upon Breville’s
ability to successfully penetrate international
markets.
(h) Seasonality
Breville’s sales are subject to some seasonal
fluctuations. There is typically increased demand
in the period leading up to Christmas.
Any significant decrease in sales during this period
could have a material adverse effect on Breville’s
financial performance.
(i) Reliance on third party brands
Breville distributes third party brands (including
Philips, Keurig and Scanpan A/S) pursuant to
distribution agreements with the relevant brand
owners.
As Breville is not the owner of the brands there
is a risk that Breville may lose the right to use
these brands, either as a result of non-compliance
by it with the distribution terms or as a result of
an action by the other party. A loss of the right
to use a brand may have an adverse impact on
Breville’s trading performance.
6.2 General risks
Breville is affected by general business cycles
and economic conditions including interest rates,
inflation, disposable income levels, consumer
sentiment, the housing market, population growth
and population demographics.
Changes in general macroeconomic factors may
result in consumers changing spending patterns
or their level of consumption, which may have
a material adverse impact on Breville and its
earnings.
6 Risk factors
6.3Risks if GUD acquires more
than 50% but less than 90%
of Breville
(a)Breville will be owned by its major
competitor in Australia and New Zealand
If GUD acquires control but not 100% ownership
of Breville, Breville will be controlled by its major
competitor in Australia and New Zealand. While
GUD has confirmed that it will comply with all
applicable laws, GUD has not explained how it
will address potential conflicts of interest. Refer
to section 2 of this Target’s Statement for further
information in relation to these potential conflicts of
interest.
(b)No certainty of another offer by GUD in
the future
There is no certainty that GUD will make another
offer for Breville in the future. This means that you
could remain a minority shareholder in a company,
the shares in which are likely to be fairly illiquid. In
such circumstances, it may be difficult for you to
sell your shares on ASX. Refer to section 2 of this
Target’s Statement for further information.
(c)No certainty that Premier & Lew Interests
would accept another offer in the future
and if they don’t, that their interests
will be aligned with other Breville
Shareholders
If the Premier & Lew Interests do not accept the
current Offer, the ability of GUD to acquire 100%
and the willingness of GUD to make another
offer in the future will depend heavily on their
willingness to sell their Breville Shares and to
sell at a price acceptable to GUD. There is no
certainty that the Premier & Lew Interests would
be willing to sell their Breville Shares or to accept
another offer from GUD in the future and the
Premier & Lew Interests objectives and interests
may not always be aligned to those of other
minority shareholders in Breville.
In addition, there is no certainty that Premier
Investments Limited will respond to the Offer in
the same manner as the Lew Interests.
(d) Breville’s dividend policy may change
If GUD acquires control of Breville, it will have
the power to change Breville’s dividend policy.
GUD has indicated in the Bidder’s Statement,
that it has not yet formed any intention about
retaining or varying Breville’s current dividend
policy. Accordingly, there is a risk that upon GUD
obtaining control of Breville, it will cease to pay
any dividends or reduce the dividends paid by
Breville.
(e)Consequences of a change of control of
Breville
There are a number of Breville’s material contracts
that have change of control provisions. This means
that if GUD obtains control of Breville, some of
Breville’s material contracts may be terminated or
the key terms renegotiated. Refer to section 9.6 of
this Target’s Statement for further information.
GUD (via its nominees to the Breville Board) may
also seek to change the way in which Breville
operates. In particular, GUD may seek to change
the way in which Breville operates from that
contemplated in producing the pro forma forecast
income statement.
(f)GUD may obtain control of Breville
without paying a control premium
If GUD waives its 50.1% minimum acceptance
condition, it is possible that GUD will increase its
shareholding in Breville under the Offer without
obtaining control. This means that in the future
GUD may, under the ‘creep’ provisions in the
Corporations Act, be able to obtain control of
Breville in the future without paying a control
premium.
39
Target’s Statement
7Directors’ recommendation
and interests
7.1 Directors of Breville
7.3 Interests of Directors
Your Board as at the date of this Target’s
Statement comprises:
(a)Interests of Directors in securities
in Breville
(i)John Schmoll (Non-Executive
Chairman);
(ii) Steven Fisher (Non-Executive Director);
(iii) Dean Howell (Non-Executive Director);
(iv)Steven Klein (Non-Executive Director);
and
(v) Samuel Weiss (Non-Executive Director).
The number and description of securities in
Breville in which each of the Directors has a
relevant interest is set out in the table below.
Director
E ach Director desires to make and considers
himself justified in making a recommendation to
Breville Shareholders in relation to GUD’s Offer.
7.2Board’s intentions and
recommendation
In assessing the Offer your Board has had
regard to all relevant information, including the
information set out in the Bidder’s Statement,
the Target’s Statement, the Independent Expert’s
Report and the Independent Accountant’s Report.
Breville Shares
John Schmoll
82,294
Steven Fisher
50,288
Dean Howell
85,000
Steven Klein
117,189
Samuel Weiss
80,775
(b)Dealings by Directors in Breville
securities
Except as set out below, there have been no
acquisitions or disposals of securities in Breville
by any Director in the four month period ending
on the day immediately preceding the date of this
Target’s Statement.
Your Board has decided to reject GUD’s Offer in
relation to their own Breville Shares.
Your Board unanimously recommends that you reject
the Offer for the reasons set out in section 1.
Director
Date
Activity
Steven
Fisher
26 August
2009
50,000 Breville
Shares bought on
market as follows:
■■
In considering whether you wish to follow that
recommendation, you should:
(i) read the Bidder’s Statement;
(ii) read this Target’s Statement;
(iii)consider your individual risk profile,
portfolio strategy, tax position and
financial circumstances;
(iv)consider your choices set out in section
3 of this Target’s Statement; and
(v)consult your legal, financial or other
professional advisor if you believe that
is necessary.
■■
■■
(c) Interests and dealings in GUD
No Director of Breville has a relevant interest in
securities of GUD or any Related Body Corporate
of GUD.
There have been no acquisitions or disposals of
securities in GUD or any Related Body Corporate
of GUD by any of Breville’s Directors in the four
months ending on the day preceding the date of
this Target’s Statement.
.
40
40,000 at $1.20
per share
5,000 at $1.22
per share
5,000 at $1.225
pre share
7 Directors’ recommendation and interests
(d) Conditional agreements
No agreement has been made between any of the
Directors and any other person in connection with
or conditional upon the outcome of the Offer.
(e) Interests in contracts with GUD
No Director has any interest in any contract
entered into by GUD.
(f) Other information relating to Directors
Steven Klein is a partner of Arnold Bloch Leibler,
legal advisers to Breville. Arnold Bloch Leibler
will be paid professional fees in accordance with
market practice for acting on behalf of Breville in
connection with the Offer.
Steven Fisher is the Managing Director of Voyager
Distributing Company Pty Ltd, an entity ultimately
controlled by S. Lew Custodians Pty Ltd, a
substantial shareholder of Breville and an entity
connected with the family of Mr Solomon Lew.
(g) Insurance and indemnities
The constitution of Breville permits the grant of
an indemnity (to the full extent permitted by law)
in favour of each Director and Officer of Breville
against all losses and liability to any person
incurred as an Officer of Breville.
Each Director of Breville has signed a Deed of
Indemnity, Insurance and Access with Breville
under which each Director is indemnified to the
extent permitted by law against any liability
incurred by the person while acting in the role of
an Officer of Breville or any of its Related Bodies
Corporate.
In addition, Breville has a Directors’ and Officers’
liability insurance policy that insures certain
present and future Directors and Officers against
certain liability incurred in that capacity.
Breville is currently in discussions with its
insurance broker to procure run-off coverage for
the Directors’ and Officers’ liability insurance for
which a premium will be paid in advance. If GUD’s
Offer does not result in a change of control of
Breville, the premium for this run-off coverage will
be repaid to Breville.
41
Target’s Statement
8 Taxation considerations
8.1 General
A general outline of the Australian tax implications
of accepting GUD’s Offer is set out in section 9 of
the Bidder’s Statement.
Breville Shareholders should seek their own
taxation advice, having regard to their own
circumstances. Breville Shareholders should not
rely solely on GUD’s descriptions in the Bidder’s
Statement in relation to the taxation implications
of accepting GUD’s Offer. In particular, Breville
Shareholders who are subject to taxation outside
Australia should obtain their own advice as to the
tax consequences for them of GUD’s Offer, which
may be different to those applicable to Australian
resident Breville Shareholders.
8.2CGT “scrip for scrip” rollover
relief
Unless GUD becomes the owner of at least 80%
of Breville Shares, Breville Shareholders will not
be entitled to “scrip for scrip” CGT rollover relief.
Unless CGT rollover relief is available, Breville
Shareholders who realise a capital gain as a result
of accepting GUD’s Offer may have a tax liability
but will have no cash from GUD to pay for that tax.
42
9 Other material information
9.1 Material information
T he Target’s Statement is required to include all
the information that Breville Shareholders and their
professional advisers would reasonably require to
make an informed assessment whether to accept
the Offer, but:
(i)only to the extent to which it is
reasonable for Breville Shareholders and
their professional advisers to expect
to find this information in this Target’s
Statement; and
(ii)only if the information is known to any
Director.
Your Board is of the opinion that the information
that Breville Shareholders and their professional
advisers would reasonably require to make an
informed assessment whether to accept the Offer
is:
(i)the information contained in the Bidder’s
Statement;
(ii)the information contained in Breville’s
releases to ASX prior to the date of this
Target’s Statement; and
(iii)the information contained in this
Target’s Statement (including
the information contained in the
Independent Expert’s Report and
Independent Accountant’s Report).
Your Board has assumed, for the purposes of
preparing this Target’s Statement, that the
information in the Bidder’s Statement is accurate
(unless your Board has expressly indicated
otherwise in this Target’s Statement). However,
your Board does not take any responsibility for the
contents of the Bidder’s Statement and is not to be
taken to be endorsing, in any way, any or all of the
statements contained in it.
In deciding what information should be included in
this Target’s Statement, your Board has had regard
to:
(i) the nature of Breville Shares;
(ii)the matters that Breville Shareholders
may reasonably be expected to know;
(iii)the fact that certain matters may
reasonably be expected to be known
to Breville Shareholders’ professional
advisers; and
(iv)the time available to Breville to prepare
this Target’s Statement.
9.2 Issued securities
As at the date of this Target’s Statement, Breville’s
capital comprises:
(a) 129,515,322 Breville Shares;
(b) 620,000 Options comprising:
(i)200,000 Options having an exercise
price of $2.36 and an expiry date of
2 November 2011;
(ii)120,000 Options having an exercise
price of $1.82 and an expiry date of
27 March 2012; and
(iii)300,000 Options having an exercise
price of $1.12 and an expiry date of
1 July 2012; and
(c)1,282,000 Performance Rights exercisable
from 1 September 2011 until 3 October 2011.
43
Target’s Statement
9 Other material information
9.3 Substantial holders
As at 3 September 2009 (as detailed in Breville’s 2009 annual report), Breville had 4 substantial
shareholders.
Number of Breville
Shares
Percentage of issued
Breville Shares
S. Lew Custodians Pty Ltd
39,318,823
30.34
G.U.D. Holdings Limited
25,073,712
19.36
Perpetual Limited and its subsidiaries
19,016,554
13.89
8,970,800
6.93
Shareholder
Paradice Investment Management Pty Limited
9.4 Options
As at the date of this Target’s Statement, there are
620,000 outstanding Options issued by Breville to
senior executives in respect of ordinary shares in
Breville which are capable of vesting if relevant
performance conditions are met in the future.
All outstanding Options were issued to senior
executives under the HWI New Option Plan for no
consideration.
The Options were issued for a term of four
years and are exercisable after vesting in equal
tranches on the first three anniversaries of the
date of issue. The Options will vest if and when
Breville’s normalised EPS increase by 10% per
annum compounded annually over the term. If this
increase is not met within the three years from the
date of grant, the Options lapse, unless otherwise
determined by the Breville Board.
(a)Status of Options if GUD obtains 100% of
Breville Shares
The HWI New Option Plan specifies that Options
may be exercised immediately if any party becomes,
or will become, entitled to 100% of the issued
shares in the Company, whether by way of takeover,
compulsory acquisition, scheme of arrangement,
capital reduction or otherwise (Option Takeover
Provision).
In that event, the Breville Board must immediately
give written notice to all holders of Options that
all Options (including both vested and unvested
Options) may be exercised at any time during the
44
14 day period following the date of the notice by the
Breville Board.
If GUD obtains 90% of Breville Shares and
compulsorily acquires the remaining Breville Shares,
all Options will automatically become exercisable
and the Breville Board will be required to comply
with the terms of the Option Takeover Provision as
set out in the HWI New Option Plan.
(b)Status of Options if GUD obtains more than
50% but less than 90% of Breville Shares
If GUD obtains more than 50% but less than 90%
of Breville Shares, the Breville Board has broad
discretion under the HWI New Option Plan. For
example, the HWI New Option Plan provides that
the vesting conditions, vesting dates and exercise
periods in relation to the Options can be amended
from time to time as determined by the Breville
Board.
Further, the Breville Board has general powers to
administer the HWI New Option Plan, to vary the
HWI New Option Plan or any term of the HWI New
Option Plan and to terminate or suspend the HWI
New Option Plan.
(c) Condition of GUD’s Offer on Options
GUD’s Offer is conditional upon all Options having
been exercised or cancelled, or during or at the
end of the Offer Period, GUD being entitled to
compulsorily acquire all outstanding Options. Refer
to section 11.8(e) of the Bidder’s Statement.
9 Other material information
(d) Breville Board to consider
The Breville Board will consider the application
of the HWI New Option Plan, the exercise of its
discretion under that plan, and the interaction of
those matters with the relevant condition in GUD’s
Offer, and will issue a Supplementary Target’s
Statement if and when it makes any determination
in this regard.
9.5 Performance Rights
As at the date of this Target’s Statement, there are
1,282,000 outstanding Performance Rights issued
by Breville over Breville Shares.
The Performance Rights were issued to certain
Breville employees under the Breville Group
Performance Rights Plan for no consideration.
All Performance Rights were granted on 12 May
2009.
Generally, the Performance Rights vest if and
when Breville’s normalised EPS increases by 8%
per annum compounded annually over the term.
If this increase is not met cumulatively for the
three financial years ending 30 June 2011, the
Performance Rights are forfeited, unless otherwise
determined by the Breville Board.
(a)Status of Performance Rights if GUD
obtains at least 50% of Breville Shares
If GUD obtains a Relevant Interest in at least
50% of Breville Shares, the Breville Board must
determine whether Breville’s normalised EPS
growth is in line with the target annual growth rate
of 8%.
If the Breville Board determines that the
required pro rata growth has been achieved, all
Performance Rights will automatically vest.
If the Breville Board determines that the required
pro rata growth has not been achieved, all
Performance Rights will automatically lapse,
unless the Breville Board determines otherwise.
Additionally, if GUD obtains control of Breville,
and Breville and GUD agree, upon vesting of
Performance Rights a holder may be provided
with GUD Shares in lieu of Breville Shares, with
appropriate adjustments to the number of shares
provided.
(b)Condition of GUD’s Offer on Performance
Rights
GUD’s Offer is conditional upon all Performance
Rights having been exercised or cancelled, or
during or at the end of the Offer Period, GUD being
entitled to compulsorily acquire them or substitute
all outstanding Performance Rights for equivalent
rights in GUD Shares and or GUD Shares. Refer to
section 11.8(f) of the Bidder’s Statement.
(c) Breville Board to consider
The Breville Board will consider the application of
the Breville Group Performance Rights Plan, the
exercise of its discretion and the making of its
determinations under that plan, and the interaction
of those matters with the relevant condition in
GUD’s Offer, and will issue a Supplementary
Target’s Statement if and when it makes any
determination in this regard.
9.6Financing and other material
contracts that may be affected
by a change of control
This section contains a summary of all contracts
that are material to the Breville Group that may
be affected by GUD’s Offer. Section 11.8(g) of
the Bidder’s Statement contains a condition that
requires a summary of any contracts of Breville or
any of its subsidiaries that may be affected as a
result of GUD’s Offer.
Breville has applied a materiality threshold to
this condition on the basis that a summary of
all contracts no matter how immaterial is not
material information for Breville Shareholders or
GUD. Breville notified GUD of its intention to apply
a materiality threshold for the purposes of the
condition in section 11.8(g) shortly after receipt of
GUD’s Bidder’s Statement.
Breville has assessed the materiality of a contract
by reference to quantitative and qualitative
factors. A quantitative threshold of $2 million
EBITDA per annum was used to determine whether
specific contracts are material. This threshold
45
Target’s Statement
9 Other material information
is equal to approximately 5% of the pro forma
forecast FY2010 EBITDA for Breville (as set out in
section 5 of this Target’s Statement).
After due enquiry and other than the material
contracts specified below, in respect of any
material contracts, none of Breville or any of its
subsidiaries is a party to, bound by, or subject to
a contract under which any other party to such
contract could:
(a) terminate;
(b) vary, amend or modify; or
(c) exercise any right,
as a result of:
(d) GUD making the Offer;
(e)GUD acquiring Breville Shares under the
Offer;
(f)GUD obtaining a relevant interest in 50% or
more of Breville Shares then on issue; or
(g)GUD implementing any of its intentions
for Breville as described in the Bidder’s
Statement.
Breville has conducted a review of contracts that
are material to the Breville Group, based on the
materiality criteria referred to above. The relevant
provisions of these material contracts, in Breville’s
opinion, to the condition in section 11.8(g) of the
Bidder’s Statement are as follows:
(a) ANZ Facility Agreement
Breville Group operates under one primary global
facility with Australia and New Zealand Banking
Group Limited (ANZ) enabling all of its entities
to borrow under one global facility (ANZ Facility
Agreement). The ANZ Facility Agreement contains
19 financing facilities comprising A$124.925
million, C$21.55 million, US$32.165 million and
NZ$3.209 million in aggregate funding capacity.
These facilities are not currently fully drawn.
The Australia and New Zealand facilities are
secured by a first ranking fixed and floating
registered charge (or general security for
Breville New Zealand Ltd) over all the assets
and undertakings of Thebe International Pty Ltd,
46
Breville Pty Ltd, Breville Holdings Pty Ltd (Breville
Holdings), Breville R&D Pty Ltd and Breville New
Zealand Pty Ltd (each of which is wholly owned
by Breville or a Breville subsidiary) and are
guaranteed by various entities within the Breville
Group.
The ANZ Facility Agreement states that an event of
default occurs under the ANZ Facility Agreement
where there is a change in control, without the prior
written consent of ANZ, of Breville. Where an event
of default has not been remedied, ANZ may at any
time by providing notice, terminate some or all of
its obligations under the ANZ Facility Agreement,
reduce the limits on the facilities, declare that some
or all of the amounts outstanding under the facilities
are due and payable on demand, demand payment
of some or all of the total facility outstanding, or
change the conditions under which the facilities are
made available.
Control has the meaning given to it by section
50AA of the Corporations Act.
(i)Financial undertakings under the ANZ
Facility Agreement
In addition, under the ANZ Facility Agreement,
the Breville Group is subject to certain financial
undertakings which require the Breville Group
to ensure that certain financial covenants are
maintained. There is a risk that the transaction
costs incurred by Breville as a result of GUD’s Offer
may breach Breville’s fixed charge covenant under
the ANZ Facility Agreement. Breville is currently in
discussions with ANZ in relation to this covenant.
(ii) Replacement of financing facilities
In section 6.4(c) of the Bidder’s Statement, GUD
has stated that, if Breville’s existing debt facilities
are terminated as a result of a change of control,
“GUD intends (through its nominees to the Breville
Board) to recommend the replacement of the
Breville debt with existing GUD financing facilities”.
GUD has only provided a broad statement of
intention. GUD has not provided any information
to Breville Shareholders detailing the terms of any
financing arrangements that may be entered into.
9 Other material information
There is a risk that Breville’s existing financing
facilities will not be replaced. GUD has not
provided any information of what it proposes to do
in this event.
(b) HSBC Facility Letter
Anglo-Canadian Housewares LP/Articles de
Maison Anglo-Canadian SEC (Anglo-Canadian),
a wholly-owned subsidiary of Breville, has
entered into credit facilities with HSBC Bank
Canada (HSBC) (HSBC Facility Letter). All
amounts outstanding under the credit facilities
are repayable upon demand by HSBC. The HSBC
facilities are secured by a standby letter of credit
from ANZ (NY).
The HSBC Facility Letter provides that AngloCanadian must not permit a change of control of
Anglo-Canadian without the prior written consent
of HSBC.
(c) Philips Distribution Agreement
Breville Holdings has entered into a Distribution
Agreement with Philips Electronics Singapore Pte.
Ltd (Philips) in respect of the distribution of Philips
products by Breville Holdings and certain related
entities in Australia and New Zealand (Philips
Distribution Agreement).
Philips may terminate the Philips Distribution
Agreement by giving one month’s notice if there is
a change of control of Breville.
(d) Scanpan Distributor Agreement
Metro/Thebe Inc (Metro), a wholly-owned
subsidiary of Breville, has entered into a
Distributor Agreement with Scanpan A/S
(Scanpan) in respect of the exclusive distribution
of Scanpan products in the United States, Canada
and Mexico (Scanpan Distributor Agreement).
Under the Scanpan Distributor Agreement, Metro
must first obtain Scanpan’s consent (which must
not be unreasonably withheld) to assign the
Scanpan Distributor Agreement where there is
a change of control of Metro and the assignee
is engaged in the manufacture of competing
products of Scanpan.
(e) Botany Lease Agreements
Breville has entered into two lease agreements
for the lease of storage and distribution
facilities in Botany, New South Wales with ING
Industrial Custodian Pty Limited (ING Industrial)
(Botany Lease Agreements). The Botany Lease
Agreements are due to expire in August 2012.
The Botany Lease Agreements contain a change
of control provision which requires the consent
of ING Industrial prior to a change of control of
Breville.
f)
Quebec Lease Agreement
Anglo-Canadian has entered into a lease
agreement with 113631 Canada Inc (Canada) for
the lease of a distribution and importation facility
and office space in Quebec, Canada (Quebec
Lease Agreement). The Quebec Lease Agreement
is due to expire in December 2011. The Quebec
Lease Agreement contains a change of control
provision, but does not require Canada’s prior
written consent where there is a change of
control of Anglo-Canadian and Canada receives
assurances reasonably satisfactory to it that
there will be a continuity of management and
of the business practice of such corporation
notwithstanding such change of control.
(g) Options and Performance Rights
Refer to sections 9.4 and 9.5 of this Target’s
Statement for a summary of the change of control
conditions under the HWI Options Plan and Breville
Group Performance Rights Plan.
9.7Material litigation
Legal proceedings arise from time to time in the
course of the Breville Group’s and its subsidiaries’
businesses. As at the date of this Target’s
Statement, there is an outstanding dispute in
the Federal Court of Australia between Sunbeam
Corporation Limited (Sunbeam), a wholly owned
subsidiary of GUD, and Breville Pty Ltd relating
to a claim by Sunbeam that Breville’s BKE820
Variable Temperature Kettle (Kettle) infringes
Sunbeam’s patent for an invention titled ‘Improved
temperature sensor for an electric heating
47
Target’s Statement
9 Other material information
appliance’. Sunbeam is seeking declarations, an
account of profits and damages from Breville Pty
Ltd, an injunction restraining Breville Pty Ltd from
selling, offering for sale, otherwise disposing of,
importing or keeping the Kettle and delivery up
of the Kettle. The parties have been ordered to
file their evidence in the proceedings. Breville
Pty Ltd has filed a cross-claim in the proceedings
alleging that Sunbeam’s patent is invalid and liable
to be revoked, denies that the Kettle infringes
Sunbeam’s patent and is vigorously defending the
proceedings.
Other than as referred to above, as at the date of
this Target’s Statement, Breville is not aware of
any actual or potential material litigation or any
matter which could give rise to material litigation
against Breville.
9.8 Compulsory acquisition
nder Part 6A.1 of the Corporations Act, GUD will
U
be able to compulsorily acquire any outstanding
Breville Shares for which it has not received
acceptances on the same terms as the Offer if
during, or at the end of, the Offer Period GUD
(taken together with its associates):
(i)has a relevant interest in at least 90%
(by number) of the Breville Shares; and
(ii)has acquired at least 75% (by number)
of the Breville Shares for which it has
made an Offer.
In section 6.3 of the Bidder’s Statement, GUD has
indicated that if it became entitled to compulsorily
acquire outstanding Breville Shares, then it would
be likely to do so, including any Breville Shares
which are issued after the close of the Offer as a
result of the exercise of Options and Performance
Rights.
If these thresholds are met, GUD will have one
month from the end of the Offer Period within
which to give compulsory acquisition notices to
Breville Shareholders who have not accepted the
Offer. GUD may choose to commence compulsory
48
acquisition as soon as the relevant thresholds are
satisfied. The consideration payable by GUD will be
the Offer Consideration last offered under the Offer.
reville Shareholders may challenge any
B
compulsory acquisition, but this would require the
relevant Breville Shareholders to establish to the
satisfaction of a court that the terms of the Offer
do not represent fair value for the Breville Shares.
If Breville Shares are compulsorily acquired,
Breville Shareholders are not likely to receive
any payment until at least one month after the
compulsory acquisition notices are sent.
UD may also have certain rights of compulsory
G
acquisition in the future if it acquires 90% of
Breville Shares pursuant to a future offer or other
means.
9.9 Conditions of GUD’s Offer
The Offer is subject to a number of conditions.
Full details of the conditions of the Offer are set
out in section 11.8 of the Bidder’s Statement.
GUD is able to waive some of those conditions.
However, the Offer cannot become unconditional
until the ACCC condition is satisfied. ACCC
has indicated that the proposed date of the
announcement of its findings is 26 November 2009.
9.10 Transaction expenses
The Offer has resulted in Breville incurring
expenses that would not otherwise arise from
trading in the current financial year. These
expenses are estimated, as at the date of this
Target’s Statement, to be between $4.4 million
and $6.9 million (excluding GST). These
expenses are for payments to financial, legal and
accounting advisers, including the Independent
Expert and Independent Accountant and other
transaction related expenses. These expenses
will have a negative impact on Breville’s reported
earnings in the current financial year.
9 Other material information
9.11GUD’s relevant interest in
Breville
9.13 Consents
Prior to announcing its Offer for Breville, GUD held
a relevant interest in 19.4% of Breville Shares
on issue. GUD acquired these shares at $0.72
per share. GUD’s shareholding may reduce the
prospects of a competing bid for Breville.
Each of the persons listed below has given and
has not, before the lodgement of this Target’s
Statement with ASIC, withdrawn its written
consent to the inclusion of the statements in this
Target’s Statement in the form and context in
which it is included, and to all references in this
Target’s Statement to that information in the form
and context in which they appear:
(i)PwC Securities - the Independent
Expert’s Report and being named as
Independent Expert; and
(ii)Ernst & Young Transaction Advisory
Services Limited - the Independent
Accountant’s Report and being named
as Independent Accountant.
At the time GUD announced its intention to make
a takeover offer for Breville, GUD indicated it
intended to establish an Institutional Acceptance
Facility (IAF). At the same time, GUD also stated
that a number of institutional shareholders holding
approximately 28.0% of Breville Shares had
advised GUD that, provided there is no superior
offer, they intend to accept GUD’s Offer for all
of their Breville Shares through the IAF. In its
Bidder’s Statement, GUD stated that the terms
of the IAF had not been finalised and that a
supplementary Bidder’s Statement would be
released once that facility was finalised. As
at 13 November 2009, GUD has not released a
supplementary Bidder’s Statement releasing the
details of the IAF.
9.12 Payment
(a) Consent to inclusion of a statement
(b) Consent to be named
o payment for the Breville Shares accepted
N
into the Offer will be made until after the Offer
becomes unconditional.
If the Offer becomes unconditional, you will
receive the Offer Consideration by the earlier of:
(i)if the Offer is unconditional, one month
after the Offer is accepted;
(ii)if the Offer is conditional when
accepted, within one month after the
Offer becomes unconditional; and
(iii)21 days after the end of the Offer
Period.
Refer to section 11.6 of the Bidder’s Statement
for further details on when you will be sent your
payment from GUD.
(i)UBS AG has given and has not, before
the date of this Target’s Statement,
withdrawn its consent to being named
in this Target’s Statement as financial
adviser to Breville.
(ii)Arnold Bloch Leibler has given and has
not, before the date of this Target’s
Statement, withdrawn its consent to
being named in this Target’s Statement
as legal adviser to Breville.
(iii)Link Market Services Limited has
given and has not, before the date of
this Target’s Statement, withdrawn its
consent to being named in this Target’s
Statement as share registry to Breville.
(iv)Each of John Schmoll, Steven Fisher,
Dean Howell, Steven Klein and Samuel
Weiss have given and have not, before
the date of this Target’s Statement,
withdrawn their consent to being named
in this Target’s Statement and to the
inclusion of the references to them in
the form and context in which they are
included.
49
Target’s Statement
9 Other material information
(c)Disclaimer regarding statements made
and responsibility
Each person named above as having given its
consent to the inclusion of a statement or to being
named in this Target’s Statement:
(i)does not make, or purport to make, any
statement in this Target’s Statement or
any statement on which a statement
in this Target’s Statement is based
other than, in the case of a person
referred to above as having given their
consent to the inclusion of a statement,
a statement included in this Target’s
Statement with the consent of that
person; and
(ii)to the maximum extent permitted by
law, expressly disclaims and takes no
responsibility for any part of this Target’s
Statement, other than a reference to
its name and, in the case of a person
referred to above as having given their
consent to the inclusion of a statement,
any statement or report which has been
included in this Target’s Statement with
the consent of that party.
(d) No consent required
As permitted by ASIC Class Order 01/1543
this Target’s Statement contains statements
which are made, or based on statements made,
in documents lodged by GUD with ASIC or
given to ASX, or announced on the Company
Announcements Platform of ASX, by GUD.
Pursuant to the Class Order, the consent of GUD is
not required for the inclusion of such statements
in this Target’s Statement.
Any Breville Shareholder who would like to receive
a copy of any of the following documents that
contain the statements which have been included
pursuant to ASIC Class Order 01/1543 may obtain
a copy (free of charge) during the Offer Period by
contacting the Breville Shareholder Information
Line on 1800 207 622, Monday to Friday between
50
8.30am and 5.30pm (Melbourne time):
(i)the Bidder’s Statement; or
(ii)announcements made by GUD or Breville
to ASX.
In addition, as permitted by ASIC Class Order
03/635, this Target’s Statement may include or be
accompanied by certain statements:
(iii)fairly representing a statement by an
official person; or
(iv)from a public official document or a
published book, journal or comparable
publication.
(e) ASIC relief
On 6 November 2009, Breville submitted an
application to ASIC for a short extension of
time to dispatch this Target’s Statement. ASIC
granted relief on 10 November 2009, extending
the dispatch date to 16 November 2009, but still
requiring that this Target’s Statement be lodged
with GUD, ASIC and ASX by no later than 11
November 2009.
On 11 November 2009, Breville submitted a
further application to ASIC for an extension of
time to lodge and dispatch its Target’s Statement,
pending clarification from a regulatory body as
to information to be included in this Target’s
Statement. ASIC granted relief on 11 November
2009, extending the date of lodgement of this
Target’s Statement to 16 November 2009, and
extending the date of dispatch to 20 November
2009.
9.14 Continuous disclosure
Breville is a disclosing entity under the
Corporations Act and subject to regular reporting
and disclosure obligations under the Corporations
Act and ASX Listing Rules. These obligations
require Breville to notify ASX of information about
specified matters and events as they occur for the
purpose of making that information available to the
market. In particular, Breville has an obligation
(subject to limited exceptions) to notify ASX
9 Other material information
immediately on becoming aware of any information
which a reasonable person would expect to have
a material effect on the price or value of Breville
Shares.
Copies of the documents filed with ASX may be
obtained from ASX’s website at www.asx.com.au
In addition, Breville will make copies of the
following documents available for inspection at its
registered office at Building 2, Port Air Industrial
Estate, 1A Hale Street, Botany NSW 2019
(between 9.00am and 5.00pm on business days):
(i) 2009 annual report;
(ii) Breville’s Constitution; and
(iii)any other document lodged in relation
to Breville with ASX and announced to
the market between the announcement
to ASX of GUD’s acquisition of 19.4%
of Breville Shares on 29 May 2009 and
13 November 2009 (which are listed in
Annexure C of this Target’s Statement).
A copy of these documents may be requested
to be provided free of charge by contacting the
Breville Shareholder Information Line during the
Offer Period on 1800 207 622, Monday to Friday
between 8.30am and 5.30pm (Melbourne time).
Copies of documents lodged with ASIC in relation
to Breville may be obtained from, or inspected at,
an ASIC office for a fee.
51
Target’s Statement
10 Definitions
10.1 Definitions
In this Target’s Statement unless the context otherwise appears:
ACCC means the Australian Competition & Consumer Commission.
Announcement Date means the date of the announcement of the Offer by GUD, being
9 October 2009.
ASIC means Australian Securities and Investments Commission.
ASX means ASX Limited (ABN 98 008 624 691) or the market operated by that
company.
Breville means Breville Group Limited ABN 90 086 933 431.
Breville Group means Breville and all of its controlled entities.
Breville Group means the performance rights plan under which performance rights
Performance Rights Plan were issued to Breville employees.
Breville Register means the register of Breville Shareholders maintained by Breville in
accordance with the Corporations Act.
Breville Shareholder means a person who is registered as the holder of Breville Shares in
the Breville Register.
Breville Shares means fully paid ordinary shares in the capital of Breville.
Bidder’s Statement means the replacement bidder’s statement in relation to the Offer,
prepared by GUD and dated 20 October 2009.
CGT means capital gains tax.
Corporations Act means the Corporations Act 2001 (Cth).
Director means a current director of Breville.
EBIT means earnings before interest and tax.
EBITDA means earning before interest, tax, depreciation and amortisation.
EPS means earnings per share.
Ernst & Young means Ernst & Young Transaction Advisory Services Limited
Transaction ABN 87 003 599 844.
Advisory Services
FY means Financial Year.
GUD means G.U.D. Holdings Limited ABN 99 004 400 891.
GUD Group means GUD and all of its controlled entities.
GUD Shares means fully paid ordinary shares in the capital of GUD.
HWI New Option Plan means the new options plan under which options were issued to
senior executives of the Breville Group.
IAF means Institutional Acceptance Facility.
Independent Accountant means Ernst & Young Transaction Advisory Services.
Independent means the report prepared by the Independent Accountant on the pro forma
Accountant’s Report financial information of Breville for the year ended 30 June 2009 and the
year ending 30 June 2010.
Independent Expert means PricewaterhouseCoopers Securities Ltd ABN 54 003 311 617.
Independent Expert’s means the report prepared by the Independent Expert as to whether
Report the Offer is fair and reasonable.
52
10
Definitions
Offer means the takeover offer by GUD for Breville Shares as described in
the Bidder’s Statement.
Offer Consideration means the consideration offered by GUD under the Offer. As at the date of
this Target’s Statement, the consideration under the Offer is one GUD Share
for every four of your Breville Shares.
Offer Period has the same meaning given in the Bidder’s Statement.
Options means the options issued under the HWI New Option Plan.
Performance Rights means the performance rights issued under the Breville Group
Performance Rights Plan.
PwC Securities means PricewaterhouseCoopers Securities Ltd ABN 54 003 311 617.
Premier & Lew Interests means Premier Investments Limited and other interests connected with
the family of Mr Solomon Lew.
Premier Investments means Premier Investments Limited ABN 64 006 727 966
Limited
Pro forma means adjusted financial information from reported statutory results.
Related Body Corporate has the meaning it has in the Corporations Act.
Relevant Interest has the same meaning as in the Corporations Act.
Statutory Reported means amounts prepared in accordance with Breville’s accounting policies
set out in Breville’s annual report for the year ended 30 June 2009 on
pages 30-40.
Target’s Statement means this document, being the target’s statement of Breville given
under Part 6.5 Division 3 of the Corporations Act in response to the
GUD Bidder’s Statement.
Underlying Reported means Statutory Reported, adjusted for the impact of redundancy costs,
non-trading foreign exchange gains/(losses) and interest rate swap gains/
(losses) 1.
US means the United States of America.
Note:
1. Refer to section 5.8 for further details.
53
Target’s Statement
10
Definitions
10.2 Interpretation
In this document, unless the context requires otherwise:
(a) the singular includes the plural and vice versa;
(b) words denoting any gender include all genders;
(c) where a word or phrase is defined, its other grammatical forms have a corresponding meaning;
(d)a reference to a party, section or paragraph is a reference to a party, section or paragraph to or of
this Target’s Statement;
(e) headings are for convenience and do not affect interpretation;
(f)a reference to any document or agreement includes a reference to that document or agreement as
amended, novated, supplemented, varied or replaced from time to time;
(g) a reference to “$”, “A$”, “AUD” or “dollar” is a reference to Australian currency;
(h) a reference to “USD”, “US$” is a reference to United States currency;
(i) a reference to “CAD”, “C$” is a reference to Canadian currency;
(j) a reference to “NZD”, “NZ$” is a reference to New Zealand currency;
(k) a reference to “HKD”, “HK$” is a reference to Hong Kong currency;
(l)a reference to a time is a reference to Australian Eastern Standard Time or Australian Eastern
Daylight Time, whichever is appropriate;
(m)words and expressions denoting natural persons include bodies corporate, partnerships, associations,
firms, governments and governmental authorities and agencies and vice versa;
(n) a reference to any legislation or to any provision of any legislation includes:
(i) any modification or re enactment of the legislation;
(ii)any legislative provision substituted for, and all legislation, statutory instruments and regulations
issued under, the legislation or provision; and
(iii) where relevant, corresponding legislation in any Australian State or Territory;
(o)no rule of construction applies to the disadvantage of a party because that party was responsible for
the preparation of this Target’s Statement or any part of it; and
(p)the words “including”, “for example”, “such as” or other similar expressions (in any form) are not
words of limitation.
54
11Authorisation
This Target’s Statement is dated 16 November 2009, which is the date on which it was lodged with ASIC.
This Target’s Statement has been approved by a unanimous resolution passed by the Breville Board.
Signed for and on behalf of Breville Group Limited by:
John Schmoll
Non-Executive Chairman
55
Target’s Statement
ANNEXURE A
Independent Accountant’s Report
16 November 2009
The Directors
Breville Group Ltd
Building 2, Port Air Industrial Estate,
1A Hale Street
Botany NSW 2019
Dear Directors
PART 1 – INDEPENDENT ACCOUNTANT’S REPORT
Independent Accountant’s Report on Pro Forma Financial Information
We have prepared this Independent Accountant’s Report (the “Report”) at the request of the Directors of Breville
Group Ltd (“Breville”) for inclusion in a Target’s Statement to be dated on or about 16 November 2009 (the
“Target’s Statement”).
Expressions defined in the Target’s Statement have the same meaning in this Report.
The nature of this Report is such that it can be given only by an entity, which holds an Australian Financial Services
Licence under the Corporations Act. Ernst & Young Transaction Advisory Services Limited holds the appropriate
Australian Financial Services Licence.
Scope
You have requested Ernst & Young Transaction Advisory Services Limited to prepare a report for inclusion in the
Target’s Statement covering the following information:
(a)
The historical income statement summary of Breville for the year ended 30 June 2009 and the pro
forma adjustments thereto (the “Pro forma Historical Income Statement”) as set out in Sections 5.3
and 5.8 of the Target’s Statement; and
(b)
The forecast income statement summary of Breville for the year ending 30 June 2010 and the pro
forma adjustments thereto (the “Pro forma Forecast Income Statement”) as set out in Section 5.3 and
5.8 of the Target’s Statement.
The financial information set out above is referred to collectively as the “Pro forma Financial Information”.
The basis on which the Pro forma Financial Information has been prepared is set out in Section 5.2 of the Target’s
Statement, including the pro forma adjustments. Forecast assumptions have been set out in Sections 5.5, 5.6 and
5.7.
The Directors are responsible for the preparation and presentation of the Pro forma Financial Information, including
the best-estimate assumptions, which include the pro forma assumptions, on which they are based. The Pro forma
Financial Information has been prepared for inclusion in the Target’s Statement. We disclaim any assumption of
responsibility for any reliance on this Report or on the Pro forma Financial Information to which it relates for any
purposes other than for which it was prepared.
Because of its nature, the Pro forma Financial Information addresses a hypothetical situation and therefore, does not
represent the company’s actual historical or forecast financial performance.
56
ANNEXURE A
Independent Accountant’s Report
Pro Forma Historical Income Statement
We have reviewed the compilation of the Directors’ Pro forma Historical Income Statement as set out in Sections
5.3 and 5.8 of the Target’s Statement. The basis of the compilation is described in section 5.2.
As noted above the Directors are responsible for compiling the Pro forma Historical Income Statement in
accordance with section 5.2.
Our responsibility is to express an opinion about whether the Pro forma Historical Income Statement has been
properly extracted from the audited financial statements of Breville for the year ended 30 June 2009 and compiled
on the basis stated in 5.2. We are not responsible for updating reports or opinions previously issued by us for any
events that occurred subsequent to the date of our report on the historical unadjusted financial information used in
the compilation of the Pro forma Historical Income Statement.
We conducted our review in accordance with Australian Standards on Assurance Engagements ASAE 3000
“Assurance Engagements other than Audits or Reviews of Historical Financial Information” issued by the Auditing
and Assurance Standards Board. Our procedures included comparison of the unadjusted financial information
with the audited financial statements of Breville for the year ended 30 June 2009; assessing whether the Pro
forma Historical Income Statement was compiled on the basis stated; recomputing the calculation of the Pro
forma Historical Income Statement; making enquires of management regarding the Pro forma Historical Income
Statement; and evaluating the overall presentation and disclosure of the Pro forma Historical Income Statement.
Review Statement
Based on our review of the Directors’ Pro forma Historical Income Statement as set out in Sections 5.3 and 5.8 of
the Target’s Statement, which is not an audit, nothing has come to our attention which causes us to believe that the
Pro forma Historical Income Statement has not been properly extracted and compiled on the basis stated in Section
5.2.
Pro forma Forecast Income Statement
We have reviewed the Pro forma Forecast Income Statement as set out in Sections 5.3 and 5.8 of the Target’s
Statement. The Director’s best-estimate forecast assumptions have been set out in Sections 5.5, 5.6 and 5.7.
As noted above the Directors are responsible for preparing the Pro forma Forecast Income Statement in accordance
with section 5.2, and the assumptions in Sections 5.5, 5.6 and 5.7.
Our review of the Pro forma Forecast Income Statement was conducted in accordance with Australian Standards
on Assurance Engagements ASAE 3000 “Assurance Engagements other than Audits or Reviews of Historical
Financial Information,” issued by the Auditing and Assurance Standards Board. Our procedures consisted primarily
of enquiry and comparison and other such analytical review procedures we considered necessary. These procedures
included discussion with the Directors and management of Breville and have been undertaken to conclude whether
anything has come to our attention which causes us to believe that:
(a)
the Directors’ best-estimate assumptions do not provide a reasonable basis for the preparation of the Pro
forma Forecast Income Statement;
(b)
in all material respects, the Pro forma Forecast Income Statement is not properly compiled on the basis of
the best-estimate assumptions;
(c)
the Pro forma Forecast Income Statement is not presented fairly in accordance with (i) the recognition
and measurement principles (but not all of the presentation and disclosure requirements) prescribed in
Accounting Standards and other mandatory professional reporting requirements in Australia, (ii) the
accounting policies of Breville discussed in Section 5.2 of the Target’s Statement, and (iii) in the case of
the pro forma adjustments, the non-recurring and non-cash, non-trading activities disclosed in Section 5.2.
57
Target’s Statement
ANNEXURE A
Independent Accountant’s Report
(d)
the Pro forma Forecast Income Statement is unreasonable.
The Pro forma Forecast Income Statement has been prepared by the Directors to provide shareholders with a guide
to Breville’s potential future financial performance based upon the achievement of certain economic, operating,
developmental and trading assumptions about future events and actions that have not yet occurred and may not
necessarily occur. There is a considerable degree of subjective judgement involved in the preparation of the Pro
forma Forecast Income Statement. Actual results may vary materially from those in the Pro forma Forecast Income
Statement and the variation may be materially positive or negative. Accordingly, shareholders should have regard
to the Risk Factors set out in Section 6 of the Target’s Statement and Sensitivity Analysis set out in Section 5.9 of
the Target’s Statement.
Our review of the Pro forma Forecast Income Statement, which is based on best-estimate assumptions, is
substantially less in scope than an audit examination conducted in accordance with Australian Auditing and
Assurance Standards. A review of this nature provides less assurance than an audit. We have not performed an
audit and we do not express an audit opinion on the Pro Forma Forecast Income Statement included in the Target’s
Statement.
Review Statement
Based on our review of the Directors’ Pro forma Forecast Income Statement as set out in Section 5.3 and 5.8 of the
Target’s Statement, which is not an audit, and based on an investigation of the reasonableness of the Directors’ bestestimate assumptions giving rise to the prospective financial information, nothing has come to our attention which
causes us to believe that:
(a)
the Directors’ best-estimate assumptions set out in Sections 5.5, 5.6 and 5.7 of the Target’s Statement do not
provide a reasonable basis for the preparation of the Pro forma Forecast Income Statement;
(b)
in all material respects, the Pro forma Forecast Income Statement is not properly compiled on the basis of
the Directors’ best-estimate assumptions;
(c)
the Pro forma Forecast Income Statement is not presented fairly in accordance with (i) the recognition
and measurement principles (but not all of the presentation and disclosure requirements) prescribed in
Accounting Standards and other mandatory professional reporting requirements in Australia, (ii) the
accounting policies of Breville discussed in Section 5.2 of the Target’s Statement, and (iii) in the case of the
pro forma adjustments, the non-recurring and non-cash, non-trading activities disclosed in Section 5.2; and
(d)
the Pro forma Forecast Income Statement is unreasonable.
The underlying assumptions are subject to significant uncertainties and contingencies often outside the control of
Breville and the Directors. If events do not occur as assumed, actual results achieved and distributions provided by
Breville may vary significantly from the Pro forma Forecast Income Statement. Accordingly, we do not confirm
or guarantee the achievement of the Pro forma Forecast Income Statement, as future events, by their very nature,
are not capable of independent substantiation. Shareholders should have regard to the Risk Factors and Sensitivity
Analysis detailed in Sections 6 and 5.9 of the Target’s Statement, respectively.
Subsequent Events
Apart from the matters dealt with in this Report, and having regard to the scope of our Report, to the best of our
knowledge and belief no material transactions or events outside of the ordinary business of Breville have come to
our attention that would require comment on, or adjustment to, the information referred to in our Report or that
would cause such information to be misleading or deceptive.
58
ANNEXURE A
Independent Accountant’s Report
Independence or Disclosure of Interest
Ernst & Young Transaction Advisory Services Limited does not have any interest in the outcome of the Target’s
Statement, other than in connection with the preparation of this Report and participation in due diligence
procedures. Ernst & Young Transaction Advisory Services Limited will receive a professional fee for the
preparation of this Report. Ernst & Young acted as statutory auditor of Breville for the year ended 30 June 2009 for
which it received a market based fee.
The Directors of Breville have agreed to indemnify and hold harmless Ernst & Young Transaction Advisory
Services Limited, Ernst & Young and their employees from claims arising out of misstatement or omissions in any
material or information supplied by the Directors.
Yours faithfully
Ernst & Young Transaction Advisory Services Limited
Patrick Winter
Director and Representative
59
Target’s Statement
ANNEXURE A
Independent Accountant’s Report
THIS FINANCIAL SERVICES GUIDE FORMS PART OF THE INDEPENDENT ACCOUNTANT’S REPORT
PART 2 – FINANCIAL SERVICES GUIDE
1.
Ernst & Young Transaction Advisory Services
Ernst & Young Transaction Advisory Services Limited (“Ernst & Young Transaction Advisory Services” or “we,”
or “us” or “our”) has been engaged to provide general financial product advice in the form of an Independent
Accountant’s Report (“Report”) in connection with a financial product of another person. The Report is to be
included in documentation being sent to you by that person.
2.
Financial Services Guide
This Financial Services Guide (“FSG”) provides important information to help retail clients make a decision as to
their use of the general financial product advice in a Report, information about us, the financial services we offer,
our dispute resolution process and how we are remunerated.
3.
Financial services we offer
We hold an Australian Financial Services Licence which authorises us to provide the following services:
•
financial product advice in relation to securities, derivatives, general insurance, life insurance, managed
investments, superannuation, and government debentures, stocks and bonds; and
•
arranging to deal in securities.
4.
General financial product advice
In our Report we provide general financial product advice. The advice in a Report does not take into account your
personal objectives, financial situation or needs.
You should consider the appropriateness of a Report having regard to your own objectives, financial situation and
needs before you act on the advice in a Report. Where the advice relates to the acquisition or possible acquisition
of a financial product, you should also obtain an offer document relating to the financial product and consider that
document before making any decision about whether to acquire the financial product.
We have been engaged to issue a Report in connection with a financial product of another person. Our Report
will include a description of the circumstances of our engagement and identify the person who has engaged us.
Although you have not engaged us directly, a copy of the Report will be provided to you as a retail client because of
your connection to the matters on which we have been engaged to report.
5.
Remuneration for our services
We charge fees for providing Reports. These fees have been agreed with, and will be paid by, the person who
engaged us to provide a Report. Our fees for Reports are based on a time cost or fixed fee basis. Our directors and
employees providing financial services receive an annual salary, a performance bonus or profit share depending on
their level of seniority.
Ernst & Young Transaction Advisory Services is ultimately owned by Ernst & Young, which is a professional
advisory and accounting practice. Ernst & Young may provide professional services, including audit, tax and
financial advisory services, to the person who engaged us and receive fees for those services.
60
ANNEXURE A
Independent Accountant’s Report
Except for the fees and benefits referred to above, Ernst & Young Transaction Advisory Services, including any of
its directors, employees or associated entities should not receive any fees or other benefits, directly or indirectly, for
or in connection with the provision of a Report.
6.
Associations with product issuers
Ernst & Young Transaction Advisory Services and any of its associated entities may at any time provide
professional services to financial product issuers in the ordinary course of business.
7.
Responsibility
The liability of Ernst & Young Transaction Advisory Services is limited to the contents of this Financial Services
Guide and the Report.
8.
Complaints process
As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints
from persons to whom we provide financial services. All complaints must be in writing and addressed to the AFS
Compliance Manager or the Chief Complaints Officer and sent to the address below. We will make every effort to
resolve a complaint within 30 days of receiving the complaint. If the complaint has not been satisfactorily dealt
with, the complaint can be referred to the Financial Ombudsman Service Limited.
9.
Compensation Arrangements
The Company and its related entities hold Professional Indemnity insurance for the purpose of compensation should
this become relevant. Representatives who have left the Company’s employment are covered by our insurances
in respect of events occurring during their employment. These arrangements and the level of cover held by the
Company satisfy the requirements of section 912B of the Corporations Act 2001.
Contacting Ernst & Young
Transaction Advisory Services
AFS Compliance Manager
Ernst & Young
680 George Street
Sydney NSW 2000
Telephone: (02) 9248 5555
Contacting the Independent Dispute Resolution
Scheme:
Financial Ombudsman Service Limited
PO Box 3
Melbourne VIC 3001
Telephone: 1300 78 08 08
This Financial Services Guide has been issued in accordance with ASIC Class Order CO 04/1572.
61
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Independent Expert’s Report
Breville Group Limited
16 November 2009
62
ANNEXURE B
Independent Expert’s Report
The Directors
Breville Group Limited
Building 2 Port Air Industrial Estate
1A Hale Street
Botany NSW 2019
PricewaterhouseCoopers
Securities Ltd
ACN 003 311 617
ABN 54 003 311 617
Holder of Australian Financial
Services Licence No 244572
Freshwater Place
2 Southbank Boulevard
SOUTHBANK VIC 3006
GPO Box 1331L
MELBOURNE VIC 3001
Website:www.pwc.com/au
Telephone 61 3 8603 1000
Facsimile 61 3 8603 1999
16 November 2009
Dear Directors
Independent Expert’s Report in relation to the proposed off-market takeover by G.U.D Holdings
Limited for Breville Group Limited
PricewaterhouseCoopers Securities Ltd (PwC Securities) has been retained to prepare an
Independent Expert’s Report (IER) for Breville Group Limited (Breville or the Company) with respect to
G.U.D Holdings Limited’s (G.U.D) off-market takeover bid for all the ordinary shares in Breville which it
does not currently own (the Offer). Under the Offer, accepting Breville shareholders will receive one
G.U.D share for every four Breville shares held. If the Offer is successful, G.U.D will hold an interest in
Breville of between 50.1% and 100%.
PwC Securities has been requested to address whether or not the Offer is fair and reasonable for
Breville shareholders not associated with G.U.D (Breville’s non-associated shareholders).
PwC Securities is of the opinion that in the absence of a superior offer emerging, the Offer is
not fair and is not reasonable.
PwC Securities has formed its opinion by considering the fairness of the Offer and the advantages and
disadvantages accruing to Breville shareholders not associated with G.U.D.
PwC Securities’ opinion should be read in conjunction with the remainder of this letter and the attached
detailed IER which sets out PwC Securities’ scope and findings.
PwC Securities’ approach, decision criteria, evaluation process and findings are set out in this IER.
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Summary of the Offer
Under the terms of the Offer, accepting Breville shareholders will receive one G.U.D share for every
four Breville shares held. At the time of this report, G.U.D had a relevant interest in Breville of 19.4%
(19.1% on a fully diluted basis) and is offering to buy all the Breville shares it does not currently own.
The Offer is subject to a number of conditions as set out in the bidder’s statement (Bidder’s
Statement), including G.U.D acquiring a relevant interest of at least 50.1% in Breville (on a fully diluted
basis and inclusive of G.U.D’s pre-offer shareholding in Breville) and Australian Competition &
Consumer Commission (ACCC) clearance.
Basis of evaluation
Notwithstanding the fact that there is no requirement under either the Australian Securities Exchange
(ASX) Listing Rules or the Corporations Act for Breville to engage an independent expert in relation to
the Offer, PwC Securities has been asked to consider whether the Offer is fair and reasonable in
compliance with ASIC Regulatory Guide (RG) 111.
Section 638(1) of the Corporations Act requires that the target statement must include all the
information that holders of bid class securities and their professional advisers would reasonably
require to make an informed assessment whether to accept the offer under the bid.
Section 640(1) of the Corporations Act requires that an expert report to accompany a target statement,
given in accordance with section 638 must state whether, in the expert’s opinion, the takeover offer is
fair and reasonable and give reasons for forming that opinion.
RG 111 outlines that “…an offer is ‘fair’ if the value of the offer price or consideration is equal to or
greater than the value of the securities the subject of the offer…” and “An offer is ‘reasonable’ if it is
fair. It might also be ‘reasonable’ if, despite being ‘not fair’, the expert believes that there are sufficient
reasons for security holders to accept the offer in the absence of any higher bid before the close of the
offer.”
Is the Offer fair?
PwC Securities has assessed that the Offer is not fair to Breville’s non-associated shareholders.
G.U.D is offering Breville shareholders one G.U.D share for every four Breville shares held. If
successful, the Offer will result in G.U.D obtaining control of Breville.
To determine whether the Offer is fair to Breville shareholders, PwC Securities has compared the
value of a Breville share being acquired (on a control basis) with the value of the consideration being
offered, represented by a share in G.U.D on a minority basis. The value of G.U.D has been assessed
based on a standalone (excluding Breville) basis and also on a notionally combined entity basis
assuming the Offer is successful, separately at 100% and 50.1% of Breville (adjusted to reflect the
scrip consideration ratio of one to four). This comparison is presented below:
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ANNEXURE B
Independent Expert’s Report
Fairness test
Breville (controlling basis) per share
Low
High
$
$
2.73
2.90
Standalone basis
G.U.D (minority basis) per share1
8.80
8.95
Implied value per Breville share
2.20
2.24
G.U.D (100% control of Breville) per share
10.27
10.65
Implied value per Breville share
2.57
2.66
G.U.D (50.1% control of Breville) per share
8.81
9.01
Implied value per Breville share
2.20
2.25
Notionally combined basis
¹ Low based on 30 day VWAP prior to the offer, high based on 16 day VWAP post-Offer to close of trade on 30 October 2009.
PwC Securities has assessed the Offer as not fair because the low end of its assessed value per
Breville share of $2.73 exceeds:


the high end of the value range for the notionally combined entity, assuming 100% control of
Breville, of $2.66 (implied value per Breville share)
the high end of the value range for the notionally combined entity, assuming 50.1% control of
Breville, of $2.25 (implied value per Breville share).
The low end also exceeds the high end of the value range for G.U.D (standalone) having regard to
recent share trading of $2.24 (implied value per Breville share).
PwC Securities considers that Breville shareholders should be entitled to participate in 50% of the
value of expected synergies (refer to section 7.5). If the value of synergies are excluded, the assessed
value range for Breville is between $2.14 and $2.26 per share. This value range falls below or within,
the assessed value ranges of the consideration being offered.
Is the Offer reasonable?
PwC Securities has assessed that the Offer is not reasonable. PwC Securities has formed this view by
considering the advantages and disadvantages and other matters to the non-associated Breville
shareholders if they accept or reject the Offer. These are set out below:
Advantages
Premium on Breville’s share price prior to the Offer
A G.U.D share price of $8.80, based on the 30 day VWAP prior to the announcement of the Offer,
implies a Breville share price of $2.20 based on the terms of the Offer.
Breville’s share price since the announcement of the Offer (up to 30 October 2009) has traded
between $2.09 and $2.31 at a VWAP of $2.20. The closing price of Breville immediately preceding the
Offer was $1.50 and the 30 day VWAP preceding the announcement of the Offer was $1.44.
The implied Breville share price of $2.20 represents a premium of approximately 53% and 47% to the
30 day VWAP ($1.44) and closing share price ($1.50) immediately prior to the announcement of the
Offer, respectively.
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
In the event the Offer does not succeed, the Breville share price is likely to fall from the levels
observed post the announcement of the Offer. The extent of any decline will be dependent upon:




any re-rating of Breville from the earnings expectation upgrade referred to at section 2 of the
Target Statement which positively impacts its share price. PwC Securities has assessed the
minority interest value of a Breville share to be between $1.95 and $2.05, based on Breville’s
forecast earnings for the year ended 30 June 2010
the market’s assessment of the prospect that a future transaction (including consideration for
control and synergy benefits) is likely to occur in the foreseeable future
general movements in market sentiment, economic outlook or earnings expectations which
positively impact Breville’s share price
the impact of Breville’s level of share trading liquidity.
Breville’s share price may also fall in the event that the Offer is successful at less than 100%. In such
circumstances the extent of decline will be dependent upon the factors above, in addition to:



the prospect that G.U.D may seek 100% ownership of Breville at a future date at a price equal
to or exceeding the assessed value of the consideration currently offered
the impact of decreased liquidity for Breville shares
the market’s assessment that Breville’s future prospects will be negatively affected by a major
competitor controlling its strategic direction.
Access to synergy benefits
In the event the Offer is successful, synergistic benefits are expected to accrue to Breville
shareholders. If G.U.D successfully acquires 100% of the shares in Breville, the benefits are expected
to be realised over a relatively short period of time and with relatively minor realisation costs outside of
staff redundancies (refer section 7.5 of this report).
Breville management have estimated that maintainable pre-tax cost savings and incremental revenue
opportunities, of between $20 million to $25 million per annum, could be realised by G.U.D by
obtaining 100% of Breville. Breville management have also estimated that annual benefits of
approximately $20 million to $30 million could be realised by other potential international purchasers.
The estimated cost to realise these synergies is approximately $5 million.
There is some risk that all identified benefits will not be fully realised, that they will take longer to
achieve in practice or that the implementation costs will be higher than expected. Significant risks
which may impact the timing, quantum and ability to achieve the expected benefits, and also the level
of market share, include:



the integration of the businesses may be a distraction for management and staff which could
negatively impact the businesses if not managed effectively
the responses from competitors
the ability to integrate back office and information technology (IT) systems.
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ANNEXURE B
Independent Expert’s Report
In the event that G.U.D achieves less than 100% ownership of Breville, Breville management have
estimated that minimal cost savings will be available. This is discussed further in the disadvantages of
the Offer below.
To the extent that the Offer is not successful and no other transaction is forthcoming, or expected to be
forthcoming, either from G.U.D or another interested party, then Breville shareholders will not be able
to benefit from the realisation of these potential synergies.
Increase in liquidity and market capitalisation for Breville shareholders who accept the Offer
G.U.D’s recent share trading history has displayed a higher level of liquidity than Breville’s. G.U.D is
also included in the S&P ASX 200 Index. If the Offer is successful G.U.D’s assessed market
capitalisation at 100% ownership of Breville is estimated to be between $895.4 million and $928.4
million, assuming G.U.D shares trade within the assessed value range indicated in this IER. At 50.1%
ownership, G.U.D’s expected market capitalisation is estimated to be between $623.7 million and
$638.2 million. At these levels of market capitalisation, it is unlikely that G.U.D would form part of the
S&P ASX 100 Index, without significant earnings growth or further acquisitions.
Whether G.U.D remains in the S&P ASX 200 Index is ultimately dependant upon its market
capitalisation and trading liquidity, however companies in this index are typically more frequently
traded and therefore have higher liquidity levels than smaller companies. In addition, the index is
widely utilised by fund managers and institutional shareholders to benchmark performance.
Being a shareholder in the larger G.U.D may benefit Breville shareholders who accept the Offer and
retain their resulting interest in G.U.D through greater analyst coverage, institutional interest and
liquidity to trade their shares, relative to if they remain a shareholder of Breville.
Increased dividend payments
G.U.D has historically paid higher dividends per share than Breville. In addition, Breville’s recent
dividend payments have been unfranked. G.U.D has indicated that if the Offer is successful, accepting
Breville shareholders may benefit from increased dividends per share. Ultimately, this will depend
upon G.U.D’s future earnings per share, level of gearing and dividend policy. The attractiveness of
receiving increased dividend payments will depend on each Breville shareholder’s preference for
dividend receipts over share price appreciation.
Opportunity to participate in a control transaction
If the Offer is successful, accepting Breville shareholders may benefit from participating in a control or
other similar transaction if they remain a shareholder of G.U.D, if such a transaction ultimately
transpires. However at the time of completing this IER, PwC Securities is unaware of any prospect for
such a transaction to occur.
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Disadvantages
The value of the consideration offered is uncertain, largely due to uncertainty over synergy benefits
able to be realised
If the Offer is successful, the value of consideration to be received by accepting Breville shareholders
will depend on the level of ownership ultimately held by G.U.D. PwC Securities has assessed the value
of the consideration at between $2.20 and $2.25 per Breville share if 50.1% ownership is achieved and
at between $2.57 and $2.66 per Breville share if 100% is achieved.
This is because the potential synergistic benefits outlined in the IER are anticipated to be available
only in the event that G.U.D achieves 100% ownership of Breville. In the event that G.U.D achieves
less than 100% ownership (either as a result of this Offer, or at some future date), the ability to extract
cost savings and achieve revenue increments will be significantly reduced. Under this scenario it is
anticipated that minimal benefits will be available (estimated at between $1 million and $2 million per
annum) and will primarily relate to freight savings.
It is likely that Breville shareholders will not know what value will be received under the Offer until
completion, or near completion, of the Offer.
Incentive for G.U.D to seek a 100% interest in Breville
There are significant incentives for G.U.D to achieve a 100% interest in Breville. These include the
ability to realise the significant increment in expected synergies which cannot be unlocked unless
100% of Breville is acquired, ultimately benefiting from reducing cost structures, an enhanced brand
portfolio (to expand current product ranges into markets which it is currently unable to enter under the
Sunbeam brand) and capitalising on combined product development strengths across Breville and
G.U.D.
Prospect for an increased offer from G.U.D
If G.U.D does not succeed in obtaining 100% of Breville or at least 50.1% interest in Breville, PwC
Securities considers that G.U.D may:





increase its current Offer
make an alternate offer at a later date to acquire any outstanding shares
increase its shareholding under the creeping acquisition provisions of the Corporations Law
a combination of the above
hold or sell its existing shareholding in Breville.
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ANNEXURE B
Independent Expert’s Report
PwC Securities considers that G.U.D has capacity to increase its Offer for Breville shares on the basis
that:



it is currently offering scrip and not cash
G.U.D can increase its current Offer to within the range of values for a Breville share assessed
as fair by PwC Securities, acquire a 100% interest in Breville and still provide incremental
value to existing G.U.D shareholders
G.U.D has not declared its Offer final.
G.U.D is unlikely to obtain a 100% interest in Breville under the Offer
G.U.D has indicated that a number of Breville shareholders intend to support the Offer (in the absence
of a superior offer). G.U.D, in their Bidder’s Statement, note these shareholders hold approximately
28% of Breville. If they accept, G.U.D will hold approximately 47% of Breville.
The directors of Breville have indicated that they will unanimously reject the Offer in respect of their
Breville shareholdings (less than 1% of Breville’s issued shares).
Premier Investments Ltd (Premier) and parties with interests in Breville connected with the family of
Mr. Solomon Lew, the Chairman of Premier (combined holding of approximately 29% on a fully diluted
basis) (the Premier and Lew Interests) have not indicated whether they will accept or reject the Offer.
G.U.D cannot acquire 100% of Breville without these shareholders accepting the Offer, at least in part,
to enable G.U.D to hold 90% of Breville and seek to compulsorily acquire the remaining shares in
Breville to reach 100% ownership.
Premier notes on its website that:
“Premier was established as an investment company to maximise growth in capital
returns to shareholders through the acquisition of controlling or strategic
shareholdings in premier Australian companies with a particular concentration on
the areas of retailing, importing and distributing.”
Based on Premier’s stated objective, PwC Securities considers that the Premier and Lew Family
interests are not likely to accept the Offer unless there is no alternate manner in which to strategically
achieve a higher value for their interests than that provided under the Offer.
Opportunity to participate in a control transaction
Accepting Breville shareholders will lose the opportunity to participate in another control transaction
relating to Breville, unless G.U.D is the subject of a takeover offer, and accepting Breville shareholders
maintain their shareholding in G.U.D.
Other considerations
Prospects for and likely value of, a superior alternative offer from another party
PwC Securities is not aware of any superior alternative offer being contemplated for Breville as at the
date of this IER. Based on the assessment of value, including available synergies (including those
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Breville management have determined would be available to a buyer other than G.U.D) the likely value
that an alternate buyer may place on Breville shares, if all of Breville’s shares were available for
purchase, would be similar to the value assessed by PwC Securities in this IER of between $2.73 and
$2.90 per share.
It may be possible for a value to be realised by Breville shareholders in excess of this amount either
from an increased offer from G.U.D or another party. However PwC Securities considers this to be
most likely dependent upon there being more than one bidder seeking control of Breville. G.U.D’s
existing holding in Breville may act as a disincentive for an alternate offer to be forthcoming from
another party.
Earnings per share (EPS)
If successful, the Offer is expected to be EPS accretive (based on broker consensus forecasts) for
accepting Breville shareholders (compared to remaining a shareholder in Breville). However the
amount of expected accretion is significantly different depending upon whether G.U.D is able to realise
the anticipated synergy benefits from combining Breville and G.U.D. Forecast EPS has been
calculated below (based on broker consensus forecasts) for Breville on a standalone basis
(unsuccessful Offer or for those shareholders who do not accept the Offer) and on a notionally
combined entity basis whereby G.U.D holds either a 50.1% or 100% interest in Breville.
Based on Breville management’s forecast and broker consensus forecasts for G.U.D, the EPS
increment is less than two cents (at 50.1%) and approximately six cents (at 100%) for the year ending
30 June 2010.
2009
1
Actual
2010
2011
2012
2
Broker Consensus Forecast
2010
Management
3
Forecast
Breville standalone
NPAT ($'m)
Number of Breville shares
Breville EPS (cents)
4
15.9
17.6
20.3
22.5
19.1
131,417,322
13.1
131,417,322
13.4
131,417,322
15.4
131,417,322
17.1
131,417,322
14.5
46.1
70,798,012
49.2
70,798,012
52.1
70,798,012
46.6
70,798,012
16.3
22%
17.4
13%
18.4
8%
16.4
69.6
87,192,323
74.1
87,192,323
78.1
87,192,323
70.8
87,192,323
19.9
49%
21.2
37%
22.4
31%
20.3
Combined entity at 50.1%
5
NPAT ($'m)
Number of G.U.D shares
6
Implied Breville EPS (cents)
% increase over Breville standalone
Combined entity at 100%
5
NPAT ($'m)
Number of G.U.D shares
6
Implied Breville EPS (cents)
% increase over Breville standalone
1. Underlying NPAT (2009 annual report).
2. 2010 (forecast), 2011 (forecast) and 2012 (forecast) based on consensus broker forecasts immediately post the announcement of the Offer.
3. Underlying reported NPAT as set out in the Target Statement.
4. Fully diluted.
5. Based on Breville NPAT above adjusted for shares already held by G.U.D, consensus G.U.D NPAT broker forecasts and adjusted for synergies at 50.1% and 100%
as set out in the IER, and fully diluted Breville shares.
6. Adjusted for Offer ratio of one G.U.D share for every four Breville shares.
Relative risks
Breville shareholders who accept the Offer will receive shares in a larger, more diversified company
(on a combined basis) than Breville. The effective interest of a Breville shareholder (who accepts the
Offer) in Breville’s business will be diluted by becoming exposed to G.U.D’s cleaning, water,
automotive and security products businesses. These businesses may have different risk profiles and
expected earnings growth prospects than that associated with Breville’s existing business.
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ANNEXURE B
Independent Expert’s Report
Remaining a minority shareholder in Breville
There is no certainty that G.U.D will increase their Offer or another party will make an offer at a price
exceeding the assessed value of consideration under G.U.D’s Offer. If the Offer is successful at less
than 100%, and G.U.D does not seek to achieve 100% ownership, Breville shareholders are likely to
remain as minority shareholders in a company controlled by a key competitor.
Scrip for scrip rollover relief may not be available
The tax consequences of accepting the Offer will vary between individual Breville shareholders.
General advice in relation to the tax implications of the Offer is set out in section 9 of G.U.D’s Bidder
Statement.
Scrip for scrip rollover relief will only be available if the Offer is successful and G.U.D holds at least
80% of Breville shares after the Offer. In the event that at the expiry of the Offer, G.U.D holds in
excess of 50.1% of Breville’s shares and the requirements for rollover relief are not satisfied, accepting
Breville shareholders who realise a capital gain may have a tax liability.
No cash alternative
The Offer is a scrip for scrip transaction and there is no cash alternative for Breville shareholders. In
the event that the Offer is successful, the value of the consideration received by accepting Breville
shareholders will ultimately depend on G.U.D’s share price at the time.
G.U.D’s share price post-Offer
A Breville shareholder’s decision to remain a shareholder in G.U.D is not related to the decision
whether to accept the Offer. This is a separate investment decision and will depend upon each
shareholder’s individual risk appetite, personal circumstances, and outlook for, and expectations of,
G.U.D and more broadly the market and economy.
If the Offer is successful, G.U.D’s shares may or may not trade within the assessed range indicated in
this IER (either on a 100% or 50.1% basis).
Breville shareholders with a desire for liquidity and who do not wish to accept the G.U.D Offer can sell
their shares on market at a premium to the historic Breville share price, prior to the Offer’s expiry.
Independent financial advice
The ultimate decision on whether to accept or reject the Offer should be based on each Breville
shareholder’s assessment of the Offer and their own circumstances. The taxation implications of the
Offer are likely to vary according to the circumstances for each individual Breville shareholder. PwC
Securities recommends that if any Breville shareholder is uncertain of the impact of the Offer on their
individual taxation position, is in doubt about the proposed transaction, or matters dealt with in the IER,
they should seek independent professional advice.
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
PwC Securities’ full opinion on the proposed transaction, and the reasoning behind its opinion, is
included in this report. PwC Securities recommends that Breville shareholders read the entire report
before deciding whether or not to accept the Offer.
The qualifications, declarations, disclaimers and consents contained in appendices to this IER form an
integral part of, and should be read with, this report.
Yours faithfully
Nigel Smythe
Richard Stewart
Authorised Representative
Authorised Representative
PricewaterhouseCoopers Securities Ltd
PricewaterhouseCoopers Securities Ltd
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ANNEXURE B
Independent Expert’s Report
Contents
1.
Introduction and purpose of PwC Securities' report .......................................................................... 2
2.
Basis of evaluation............................................................................................................................. 4
3.
Industry overview............................................................................................................................... 6
4.
Profile of Breville.............................................................................................................................. 14
5.
Profile of G.U.D................................................................................................................................ 28
6.
Valuation methodologies ................................................................................................................. 38
7.
Valuation of Breville ......................................................................................................................... 41
8.
Valuation of G.U.D........................................................................................................................... 50
9.
Evaluation of the Offer ..................................................................................................................... 56
Appendix A – Financial Services Guide ................................................................................................... 65
Appendix B - Sources of information........................................................................................................ 67
Appendix C - Qualifications, disclaimers and consents ........................................................................... 68
Appendix D - Breville financial information............................................................................................... 70
Appendix E - G.U.D financial information................................................................................................. 71
Appendix F - Comparable companies ...................................................................................................... 72
Appendix G - Glossary of Terms .............................................................................................................. 73
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 1 - Introduction and purpose of PwC Securities’ report
_________________________________________________________________________________
1.
Introduction and purpose of PwC Securities’ report
1.1.
Outline of the Offer
On 9 October 2009, G.U.D announced its off-market takeover bid for all the ordinary shares in Breville.
Under the Offer, G.U.D is offering to buy all the Breville shares it does not currently own. Accepting
Breville shareholders will receive one G.U.D share for every four Breville shares held. At the time of
this report, G.U.D had a relevant interest in Breville of 19.4% (19.1% on a fully diluted basis).
The Offer is subject to a number of conditions as set out in the Bidder’s Statement, including G.U.D
acquiring a relevant interest of at least 50.1% in Breville (on a fully diluted basis and inclusive of
G.U.D’s pre-bid offer shareholding in Breville) and ACCC clearance.
If G.U.D acquires a relevant interest in excess of 90% of Breville’s shares (an additional 70.92% on a
fully diluted basis), G.U.D will be in a position to proceed with the compulsory acquisition of any
outstanding Breville shares in accordance with Part 6A.1 of the Corporations Act. This includes any of
the Breville’s shares issued as a result of the exercise of any of the options and/or performance rights
after the close of the Offer. Under this scenario, Breville will be removed from the official list of the
ASX.
At the date of this report, Breville currently has 129,515,322 issued shares and 620,000 options and
1,282,000 performance rights of varying maturities.
Shares outstanding
Ordinary shares on issue
Options
Performance rights
Total
129,515,322
620,000
1,282,000
131,417,322
Source: Breville Group Limited annual reports
1.2.
Purpose of report
Breville has appointed PwC Securities to prepare an IER assessing whether the Offer is fair and
reasonable to Breville shareholders not associated with G.U.D. This report has been prepared to
accompany the Target Statement to be distributed to Breville’s shareholders on or around 16
November 2009.
Section 606 of the Corporations Act prohibits the acquisition of a relevant interest in the issued voting
shares of a company from 20% or below to more than 20%. An exception to this general prohibition is
allowed under Section 611(1) where the acquisition results from the acceptance of an offer under a
takeover bid.
Whilst there is no statutory requirement to provide an IER in respect of the Offer, PwC Securities has
been requested to prepare this report as if it was required under Section 640 of the Corporations Act.
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ANNEXURE B
Independent Expert’s Report
Section 1 - Introduction and purpose of PwC Securities’ report
_________________________________________________________________________________
1.3.
Limitations and reliance on information
In preparing this report, PwC Securities has had regard to public and non-public information. A listing
of this information is detailed in Appendix B. PwC Securities has used and relied on the information set
out in Appendix B and representations made to it by and on behalf of Breville.
PwC Securities has conducted such checks, enquiries and analysis on the information provided which
it regards as appropriate for the purposes of this report; however such information and representations
are not always capable of external verification or validation. Based on this evaluation, PwC Securities
believes that the information used in forming the opinions in this report is reliable, complete and not
misleading and is not aware of any reason to believe that material facts have been withheld.
Preparation of this report does not in any way imply that PwC Securities has audited the financial
statements or other records of Breville. It has been assumed that the accounting information provided
was prepared in accordance with generally accepted accounting principles.
PwC Securities’ assessment has been made as at the date of this IER. Economic conditions, market
factors and performance changes may result in the IER becoming outdated. PwC Securities reserves
the right, but is under no obligation to review its assessments, and, if it considers it necessary to issue
an addendum to this IER in the light of any relevant material information which subsequently becomes
known to PwC Securities prior to the Target Statement being issued.
During the course of completing this engagement, PwC Securities has not had access to G.U.D
management and personnel. Accordingly, PwC Securities’ analysis and assessment of value of G.U.D
included in this IER is based solely on information available in the public domain.
All value amounts in the report are denominated in Australian dollars (A$) unless otherwise stated.
1.4.
Breville shareholders should seek personal advice
An individual Breville shareholder’s decision in relation to the Offer may be influenced by his or her
particular circumstances. In undertaking the assessment, PwC Securities has considered the Offer for
Breville shareholders not associated with G.U.D as a whole. PwC Securities has not considered the
effect of the Offer on the particular circumstances of individual Breville shareholders nor has it
considered their individual objectives, financial situation or needs. Individual Breville shareholders will
have varying financial and tax circumstances and it is not practical or possible to consider the
implications of the Offer on individual Breville shareholders as their respective financial circumstances
are not known to PwC Securities. Due to particular circumstances, individual Breville shareholders
may place different emphasis on various aspects of the Offer from the one adopted in this IER.
Accordingly, individual Breville shareholders may reach different conclusions as to whether they
should accept the Offer. Individual Breville shareholders should seek their own financial advice.
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75
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 2 - Basis of evaluation
_________________________________________________________________________________
2.
Basis of evaluation
PwC Securities has been requested to prepare this report as if it was required under Section 640 of
the Corporations Act.
The requirements of the Corporations Act and the implications for the IER are considered below:
2.1.
Increase in shareholding – Section 611 of the Corporations Act
Section 640 of the Corporations Act requires that an expert report to accompany a target statement
given in accordance with section 638 must state whether, in the expert’s opinion, the takeover offer is
fair and reasonable and give reasons for forming that opinion.
RG 111 outlines that “…an offer is ‘fair’ if the value of the offer price or consideration is equal to or
greater than the value of the securities the subject of the offer…”. The comparison is to be made
assuming 100% ownership of the target, irrespective of whether the consideration is scrip or cash. “An
offer is ‘reasonable’ if it is fair. However, an offer might also be ‘reasonable’ if, despite being ‘not fair’,
the expert believes that there are sufficient reasons for security holders to accept the offer in the
absence of any higher bid before the close of the offer”.
RG 111 also indicates that if a bidder is offering non-cash consideration, the expert should examine
the value of that consideration and compare it with the valuation of the target’s securities. Ordinarily
the value of the securities being offered in a control transaction should be assessed on a minority
basis, reflecting the fact that the security holders in the target are receiving scrip constituting minority
interests in the combined entity. RG 111 also indicates that if, in a scrip bid, the target is likely to
become a controlled entity of the bidder, the bidder’s securities can also be valued assuming a
notionally combined entity. The expert should still allow for the fact that accepting holders are likely to
hold minority interests in that combined entity.
The values of Breville and G.U.D shares assessed by PwC Securities for the purpose of this report
have been determined on a controlling and portfolio (or minority) interest basis respectively. PwC
Securities considers that the controlling value provides the most appropriate basis for an analysis of
the relative values of what Breville shareholders will give up (control in Breville) and what they will hold
if the takeover is implemented (a portfolio interest in G.U.D).
Ultimately, Breville shareholders will need to assess what they are giving up in terms of value, rights
and entitlements in Breville, to what they will receive in value, rights and entitlements and other
benefits from holding G.U.D shares. A significant element of this analysis is understanding the
implications for Breville shareholders should they decide not to accept the Offer.
2.2.
Fair and reasonable – Factors considered
In considering whether the Offer is fair to Breville’s non-associated shareholders, PwC Securities has
had regard to the value of Breville shares assessed on a controlling basis relative to the value of the
consideration being offered by G.U.D. The value of the consideration has been assessed on a
4
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ANNEXURE B
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Section 2 - Basis of evaluation
_________________________________________________________________________________
standalone and a notionally combined entity basis, assuming the Offer is successful and G.U.D
ultimately holds either a 100% or a 50.1% interest in Breville.
In considering whether the Offer is reasonable to Breville’s non-associated shareholders PwC
Securities has had regard to the other advantages and disadvantages for Breville shareholders if the
Offer proceeds compared to if the Offer does not proceed. Specifically PwC Securities’ consideration
included:




the level of premium reflected in the value of the consideration being offered relative to the
Breville share price preceding the Offer announcement
the likely Breville share price if the Offer is not successful
the impact of the Offer on liquidity and the market capitalisation of Breville and G.U.D
the prospect of participating in an alternative offer from another party or an increased offer
from G.U.D if Breville shareholders accept or reject the Offer, including G.U.D’s capacity and
incentive to increase its Offer.
In the following sections, PwC Securities summarises its findings in relation to:


the value of Breville shares (controlling basis), and the value of the consideration being offered
by G.U.D (minority interest basis)
the advantages and disadvantages and other considerations of the Offer for Breville’s nonassociated shareholders.
5
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ANNEXURE B
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Section 3 - Industry overview
_________________________________________________________________________________
Industry overview
3.
Breville’s primary operations involve the design and distribution of small household appliances in
1
Australia (49% of total revenue in FY09) , North America (36%), Asia (8%) and New Zealand (7%).
G.U.D designs, manufactures and distributes a variety of products in Australia and New Zealand
including small household appliances (55% of total revenue in FY09 includes Oates non-electrical
1
revenue) , pumps and water pressure systems (26%), automotive products (17%) and locking devices
(2%).
3.1.
Overview of the household appliance industry
Background
The household appliance industry encompasses manufacturers, wholesalers and distributors of both
major appliances (eg washing and refrigeration units) and small appliances (eg kettles, mixers and
blenders) used in domestic households.
Total revenue for the household appliance industry in Australia was $3.6 billion for the 2008 calendar
2
year . The Australian market grew steadily at an annual rate of approximately 3% - 4% between 2004
and 2007, however it declined by 0.6% in 2008, largely driven by the economic downturn experienced
towards the end of the year (see chart below).
In the 2008 calendar year, total revenue for the household appliance industry in North America was
3
US$38.3 billion . The industry showed accelerating growth in the years between 2004 and 2007, with
growth reaching over 13% in 2007. Similar to the Australian industry, the North American market
decreased by approximately 1% in 2008.
Australian household appliances industry revenue:
2004 - 2008
14%
40
5%
12%
3%
2%
2
1%
1
US$ billion
3
% Growth
4%
10%
8%
6%
20
4%
2%
0%
-1%
0
2004
2005
2006
Industry revenue (A$b)
2007
2008
% Grow th
% Growth
4
$ billion
Northern American household appliances market value:
2004 - 2008
0%
-2%
0
2004
2005
2006
Industry revenue (US$m)
2007
2008
% Grow th
Source: Datamonitor Household appliance industry (Australia, USA, and Canada), June 2009
1
2
3
Annual reports for Breville and G.U.D for the financial year ended June 2009
Datamonitor Household appliance in Australia industry profile, June 2009
Datamonitor Household appliance in United States and Canada industry profiles, June 2009
6
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Section 3 - Industry overview
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The household appliance industry is relatively broad and can be divided into six key product segments
illustrated below.
Australia household appliances market segmentation 2008
% share by market value
Vacuum cleaners and
floor polishers, 10.7%
Room comfort and
w ater heating, 18.1%
Dishw ashers, 8.9%
Cooking appliances,
22.4%
Washing appliances,
21.1%
Refrigeration
appliances, 18.8%
Northern America household appliances market
segmentation 2008
% share by market value
Vacuum cleaners
and floor polishers,
13.2%
Room comfort and
water heating,
15.1%
Dishwashers, 8.0%
Refrigeration
appliances, 23.4%
Cooking appliances,
18.4%
Washing
appliances, 21.7%
Source: Datamonitor Household appliances industry (Australia, USA and Canada), June 2009
Cooking, washing, refrigeration, room comfort and water heating appliances generated over 75% of
total industry revenue with cooking appliances being the largest segment in the Australian market
(22.4% or $800 million) and refrigeration the largest segment in the Northern American market (23.4%
or US$9.0 billion). These product segments typically represent the major appliance market, whereas
the small appliance market represents a smaller share of the broader household appliances industry.
Breville and G.U.D operate primarily within the small appliance market which includes small cooking,
beverage, home care and personal care appliances.
3.2.
Overview of the small household appliance industry in Australia
Total revenue (retail sales) for the small household appliances industry in Australia was approximately
4
5
A$1.4 billion in the year ended August 2009 , growing from $1.2 billion in 2007 (a compound annual
growth rate of 7.3%).
Breville and G.U.D (Sunbeam brand) are the two key players in the Australian small household
6
appliances industry with a combined market share of over approximately 40% . Breville’s share of total
revenue in the 12 month period ended August 2009 was 22.5% ($310 million). Other competitors
(excluding G.U.D) within the industry comprise mainly of international companies, typically focusing on
niche product segments. The following table outlines Australian market shares by total revenue (retail
sales) for the major players in the year ended 31 August 2009.
4
5
6
GfK Research
GfK Research
GfK Research
7
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 3 - Industry overview
_________________________________________________________________________________
Key players in the small domestic appliances segment
Company
Breville
Others
GUD
De'Longhi
AB Electrolux
Braun Gmbg
Salton
SEB
Total
Key Brands
Breville
Kambrook
Philips
Ronson
Sunbeam
DeLonghi and Kenwood
Electrolux
Braun
Russell Hobbs
Tefal
Revenue
($'m)
310.2
Revenue
share
22.5%
1,067.2
77.5%
1,377.4
100.0%
Source: GfK Research
Product segments
The Australian small household appliance market can be divided into the following key segments:





beverage
cooking
food preparation
home care
personal care.
Home care is the largest segment accounting for approximately 36% of the total market revenue
followed by the cooking products segment with total revenue of $265 million or 19% of total market
revenue. The tables below outline the revenues in each product segment over the three year period as
well as the respective market shares of Breville and others in the year ended August 2009.
Beverage
Cooking
Food preparation
Homecare
Personal care
Total industry revenue
Segment revenue ($'m)
2007
2008
2009
196.3
218.1
242.8
237.5
245.2
264.8
100.0
114.5
126.5
430.2
463.4
491.0
232.1
233.1
252.3
1,196.1
1,274.3
1,377.4
CAGR
11.2%
5.6%
12.5%
6.8%
4.3%
7.3%
Source: GfK Research
Key players share of product segments for 12 months ended August 2009
Product
Segments
Beverage
Cooking
Food preparation
Home care
Personal care
Total
Revenue
($'m)
242.8
264.8
126.5
491.0
252.3
1,377.4
Breville
29.0%
39.8%
31.4%
10.3%
17.6%
Others
71.0%
60.2%
68.6%
89.7%
82.4%
Source: GfK Research
The beverage product segment includes coffee makers, juicers, kettles and water filters. Breville and
G.U.D together account for over 50% of the beverage product segment’s revenue for the year ended
August 2009. Breville and G.U.D are smaller players in the coffee making product range which is
8
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ANNEXURE B
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Section 3 - Industry overview
_________________________________________________________________________________
7
primarily served by De’Longhi whose share of coffee makers was in excess of 40% in 2009 . The
compound average growth rate (CAGR) for the beverage segment was 11.2% over the 2 years ending
August 2009 driven primarily by an increase in coffee machine sales, which account for approximately
half of segment sales, and a large increase in sales of water filter products from $1.1 million in 2007 to
$10.1 million in 2009.
The cooking product segment comprises of grillers, sandwich presses, rice cookers, slow cookers,
toasters, woks and other related items. Breville and G.U.D lead this market and account for in excess
of 65% of total revenue with Breville holding a 39.8% share. Growth in this segment was slower, with
revenues increasing by a CAGR of 5.6% over the 2 years. Whilst the sales of many items decreased,
growth in total segment revenue was driven by continued strong demand for toasters, and sales in
slow cookers increasing from $16.4 million in 2007 to $34.4 million in 2009.
Breville and G.U.D are also the leading players (holding in excess of 65% share of revenue) in the
food preparation product segment, which includes food processors, hand blenders and mixers, kitchen
machines and liquidisers. Breville holds a 31.4% per cent share of revenues in this segment. Sales
growth has been relatively strong for all food preparation products, with the segment as a whole
increasing by a CAGR of 12.5% from $100 million in 2007 to $126.5 million in 2009.
The beverage, cooking and food preparation product segments are sometimes collectively referred to
as ‘kitchen electrics’ or the ‘food and beverage’ segment. The kitchen has become a major focus of
household expenditure, commonly considered as being one of the most expensive rooms in the house.
The food and beverage market in Australia accounted for approximately $630 million or 45% of the
small household appliance industry’s total revenue and it is estimated that the Northern American food
and beverage market is approximately 10 times the size of its Australian counterpart. The competitive
landscape is defined by a product offering that covers the entire spectrum of quality offerings, often
divided into categories ranging from premium to entry level. The premium category is defined by
product offerings with market leading design and functionality where players compete primarily on the
basis of differentiation. The entry level category is targeted at the price conscious consumer, with
products foregoing the superior functionality and design displayed in the premium category.
Competition in the middle market is considered relatively strong as several key players seek to deliver
quality branded products at reasonable prices.
The home care product segment is the largest by revenue in this industry and is comprised primarily of
a number of other players who account for 78.4% of total revenue. This segment comprises of irons,
electric blankets and vacuum cleaners. The vacuum cleaner market accounted for $302.6 million
(approximately 62%) of the home care revenues in the year ended August 2009, with several
international based companies including AB Electrolux, Dyson Ltd and Nilfisk-Advance supplying the
majority of the domestic market. Sales in the homecare segment increased by a CAGR of 6.8% from
$430.2 million in 2007 to $491.0 million in 2009. This growth was driven by an increase in vacuum
cleaner sales, with sales of all other items remaining flat over the 3 year period ending 31 August
2009.
7
Connected Australia
9
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Target’s Statement
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Section 3 - Industry overview
_________________________________________________________________________________
The personal care product segment is highly fragmented, with no particular player having a significant
share of the revenue. This segment includes products such as dental care, epilators, hair clippers,
dryers and stylers, electric shavers, personal scales and other well being and grooming appliances.
For the year ended August 2009 Breville held a 17.6% share (total personal care segment) comprising
men’s shavers under the Philips brand (market share of Philips in shavers only is in excess of 50%).
Other players in this segment include Braun and Spectrum Brands (Remington). Sales in the personal
care product segment increased by a CAGR of 4.3% from $232.1 million in 2007 to $252.3 million in
2009 as a result of moderate growth in the majority of products within the segment.
Retailers / customers
Wholesalers and distributors in the small household appliance industry sell to a variety of retailers
which can be divided into four key segments as set out in the chart below:
Total industry sales by distribution channel
Superstores, 41%
Department
Stores, 16%
Independents,
17%
Hypermarkets,
25%
Source: GfK Research
Superstores are the industry’s largest customers and accounted for approximately 41% of the sales
8
revenue in the twelve month period ended August 2009 . The segment includes retailers such as the
Good Guys and Harvey Norman. Hypermarkets accounted for approximately 25% of sales in the same
period and include large retailers such as Kmart. Independent retailers such as Retra Vision and Betta
accounted for 17% of sales revenue, with the remaining 16% of sales revenue in the twelve month
period ended August 2009 through department stores, including Myer and David Jones.
3.3.
Competitive overview
10
Competition is high within the household appliance industry in Australia . Market participants compete
primarily on the basis of price, access to attractive brands, innovation of product design, efficiency of
distribution and customer responsiveness. The small household appliance industry is served by a
number of domestic and international players. A description of each of these players are set out below:
8
GfK Research
IBISWorld Research, Household appliance wholesaling in Australia, 17 September 2009
10
10
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ANNEXURE B
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Section 3 - Industry overview
_________________________________________________________________________________
Breville
Breville, formerly Housewares International Limited (Housewares), is an Australian publicly listed
company involved in the design and distribution of small household appliances in Australia and New
Zealand and small household appliances and housewares internationally.
G.U.D
G.U.D is an Australian publicly listed company with a diversified portfolio of businesses including the
manufacture, sourcing and supply of household appliances, water products, automotive filtration
products, pumps and locks.
De’Longhi Australia Pty Ltd
De’Longhi Australia Pty Ltd is a privately owned Australian company closely associated with the Italian
based De’Longhi SpA group. It designs and markets a wide range of electrical appliances including
heating, air conditioning, cooking, food preparation, house cleaning and ironing products under the
De’Longhi and Kenwood brands.
Electrolux Home Products Pty Ltd
The Electrolux business in Australia is wholly owned by AB Electrolux, a large Swedish based
company that produces appliances and equipment for kitchen, cleaning and outdoor use. Its product
range includes refrigerators, cookers, washing machines and dryers and vacuum cleaners.
Salton (Aust) Pty Ltd
Salton (Aust) Pty Ltd is a privately owned Australian company closely associated with the USA based
Salton Inc group. It distributes and markets a range of small household appliances under the Russell
Hobbs and George Foreman brands.
SEB SA
SEB SA is a large French based company that through its subsidiaries manufactures and distributes a
wide range of small household appliances and cookware in France and internationally. SEB SA’s
brand names include Tefal, SEB, Moulinex and Krups.
3.4.
Industry outlook
The broader household appliances industry (of which small household appliances is a component) in
Australia is considered to be relatively mature. It is forecast to grow at a CAGR of approximately 4.6%
in the five year period between 2009 and 2013, and is expected to have a market value of $3.6 billion
11
by 2013 . The following chart outlines historic and forecast growth in the Australian household
11 Datamonitor Household appliance in Australia industry profile, June 2009
11
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Target’s Statement
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Section 3 - Industry overview
_________________________________________________________________________________
appliances industry as a whole, individual components such as small household appliances may
exhibit differing growth rates.
Australia Household Appliances revenue forecast 2004-2013
5
6%
5%
4%
3%
3
2%
2
1%
% Growth
$ billion
4
0%
1
-1%
-2%
0
2004
2005
2006
2007
2008
2009F 2010F 2011F 2012F
Industry revenue (A$m)
2013F
% Grow th
Source: Datamonitor Household appliance industry Australia, June 2009
The broader household appliance industry in Northern America is also considered to be relatively
mature. It is forecast to grow at a CAGR of approximately 3.5% in the period 2009 to 2013, and is
12
expected to have a market value of $44.4 billion by 2013 . The following chart outlines historical and
forecast growth in the North American household appliances industry.
Northern America Household Appliances revenue forecast 2004-2013
50
14%
12%
10%
8%
30
6%
20
4%
% Growth
US$ billion
40
2%
10
0%
0
-2%
2004
2005
2006
2007
2008
2009F 2010F 2011F 2012F 2013F
Industry revenue (US$m)
% Grow th
Source: Datamonitor Household appliance industry US and Canada, June 2009
In the immediate term for the period leading up to Christmas there is a general expectation that
product inventory will increase as retail destocking activity caused by the global financial crisis slows
and begins to reverse in the Northern American market.
A number of factors will drive the future financial performance of the key players in the household
appliance industry, these include:

the level of Gross Domestic Profit (GDP) growth, household income and consumer sentiment
which will have a significant impact on the demand for household appliances, particularly those
that are considered discretionary in nature
12 Datamonitor Household appliance in USA, Canada industry profile, June 2009
12
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Section 3 - Industry overview
_________________________________________________________________________________





3.5.
activity in the housing construction industry and the number of new dwellings created which
will have an impact on future demand for household appliances. First home buyers are more
13
likely to purchase new items to furnish a house compared to other buyers
population growth and the demand for household appliances are highly correlated, particularly
due to the impact population growth has on the demand for new homes
the rate of new product development and corresponding product life are important factors, as
many households already own most types of appliances
the ability of new market entrants to gain access to attractive brands and develop relationships
with manufacturers and retailers will influence the competitive forces within the industry
the value of the local currency relative to that of major importing countries will affect the price
industry participants pay for imported goods. Variability in the exchange rate can impact on
profitability, particularly in the short term.
Overview of the pump and compressor manufacturing industry
In addition to small appliances, G.U.D also has a water products division. This division operates within
the Australian pump and compressor manufacturing industry and is involved in the manufacturing and
distribution of a broad range of products for use in the transfer, conservation and treatment of water in
a range of end-markets. Key players within this industry include Weir Group (Australian Holdings) Pty
Limited (19.2%), G.U.D (10.8%), Flowserve Australia Pty Limited (8.1%) and Gilbarco Australia Pty
Limited (6.7%). The industry is in the growth phase of its life cycle with industry revenue reaching $1.5
14
billion in 2009 .
3.6.
Overview of the Motor Vehicle New Part Dealing Industry
G.U.D also has an automotive products division, which operates within the Australian motor vehicle
new part dealing industry and is primarily involved in the manufacture, importation and marketing of
automotive filtration and fuel pump products, predominantly for aftermarket distribution channels. The
industry as a whole is involved in the wholesaling of new motor vehicle and motorcycle parts and
accessories. Parts and accessories are sold to motor vehicle manufactures as well as aftermarket
users such as mechanics and parts retailers like Super Cheap Auto and Repco. The industry is highly
fragmented and is currently in the decline phase of its life cycle with industry revenue expected to
15
reach approximately $11.0 billion in 2009 . This decline is in part driven by the reduction in automotive
manufacturing in Australia, whilst growth in the aftermarket segment is highly correlated with the
number of motor vehicles in operation.
13
14
15
IBISWorld Research Household appliance wholesaling in Australia, 17 September 2009
IBISWorld Research Pump and compressor manufacturing in Australia, 11 August 2009
IBISWorld Research Motor vehicle new part dealing industry in Australia, 29 July 2009
13
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
4.
Profile of Breville
4.1.
Introduction and history of the business
Breville is an Australian public company listed on the ASX. The majority of Breville’s revenues are
derived from development, marketing and distribution of small electrical household appliances in
Australia, North America, Asia and New Zealand. Breville has largely completed the winding down of
its homewares division in the US following Breville’s decision to focus on its core strength in the
electrical appliances division.
Breville’s reported total revenue and underlying earnings before interest tax depreciation and
amortisation (EBITDA) for the financial year ended 30 June 2009 was $431.9 million and $33.6 million
respectively. The company currently employs 560 employees and is headquartered in Botany, New
South Wales, Australia.
History
Breville began as a small Australian importer in 1957 and listed on the ASX in May 1999. In 2001,
Housewares acquired Breville and changed its name to Breville Group Limited in 2008. In January
2002 Breville acquired a 50% interest in Anglo Canadian Housewares LP (in January 2007, the
remaining 50% stake was purchased). The SABCO brushware and cleaning business and the
Australian homewares business was sold in 2007.
Throughout Breville’s history (excluding the homewares division), there has been a progressive shift in
focus to the small electrical business globally, centred on developing the Breville brand names through
product development and innovation, rather than direct sourcing and distribution.
4.2.
Business segments
Breville operates through four distinct business segments, segregated on the basis of geography
(Australia, North America, New Zealand and Asia). Australia is Breville’s main segment accounting for
approximately 49% of total revenue in the year ended 30 June 2009 (62% of group underlying
segment EBITDA for the same period). North America is second largest segment in terms of the total
revenue (approximately 36% in 2009), however this segment only contributed approximately 4% of
group underlying segment EBITDA earned in 2009.
FY09 breakdown of revenue by geography
North America
36%
Australia
49%
FY09 breakdown of underlying segment EBITDA by geography
Asia
31%
North America
4%
Australia
62%
Asia
8%
New Zealand
7%
Source: Breville Group Limited FY09 annual report
New Zealand
3%
Note: FY09 underlying segment EBITDA excludes a negative $2.2 million
unallocated portion of EBITDA
14
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ANNEXURE B
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Section 4 – Profile of Breville
Breville has a strong presence in the Australian market in the mid to premium price range products in
the beverage, cooking and food preparation segments. Breville’s market shares outside Australia and
New Zealand are limited.
Breville does not currently have a branded presence in Europe and they do not sell their branded
products in this market. However Breville does have an exposure in this market via external
distribution arrangements.
4.3.
Products
Breville owns a portfolio of small appliance product / brands in the Australian and New Zealand
markets. In addition, Breville has exclusive distribution rights, licensing rights and general distribution
rights for a number of brands in Australia, New Zealand and North America.
Each Breville brand caters to different consumer groups within each of Breville’s geographic regions.
Breville’s vision is to be the trusted authority in the food and beverage appliances industry.
Small electrical appliances
The core of Breville’s business is the focus on small electrical appliances, through which they operate
the following brands:
Brand name
Ownership status
Product/s
Breville
Owned globally except for
UK and Europe (broadly)
Small electrical appliances
Kambrook
Owned in Australia and
New Zealand
Small electrical appliances
Philips
Exclusive distribution rights Personal care and garment
in Australia and New
care
Zealand
Owned in Australia and
Small electrical appliances
New Zealand
Ronson
Goldair
Owned in Australia
Keurig
Exclusive distribution rights Small electrical appliances
in Canada
Logo
Heating and cooling products
The Breville brand is the company’s largest brand and is primarily positioned in Australian and New
Zealand markets, focusing on the mid to premium price range for its small appliances merchandise.
The primary segments for the Breville brand include beverage, cooking, food preparation, homecare
and personal care, with the majority of revenue derived in the beverage and food preparation
categories.
15
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
Within North America, Breville have been developing a platform for the distribution of their electrical
products under the Breville brand. The current penetration of the United States (US) and Canadian
markets is fairly limited, focusing on premium products within the market.
Breville has a number of distribution agreements in place through their Asian operations where Breville
products are sold to local distributors in Europe under non-Breville brands and other countries under
the Breville brand name.
As with Breville, the Kambrook brand is also associated with small household appliances, however the
focus is on consumers seeking products that are reliable and are at affordable prices. Essentially, the
Kambrook brand is focused on the first price point above ‘home brand’ product. The point of
16
differentiation being the rigorous quality testing that the Kambrook products undergo .
The primary categories for the Kambrook brand include beverage, cooking, food preparation,
homecare and to a lesser extent personal care. The Kambrook brand is predominately recognised in
the heating and floor care (vacuum cleaners) product markets.
Kambrook products are only distributed in Australia and New Zealand.
Breville is the exclusive distributor for the Philips brands in the personal care and garment care
segments in Australia and New Zealand and has been since 2001. Philips serve the professional and
consumer market through the business segments of healthcare, lighting and consumer lifecycle. The
Philips brand is the market leader in men’s shavers and holds a strong position in the premium priced
17
iron category .
At the date of this report, Breville’s three year agreement with Philips Electronics Singapore Pte
Limited was operating under the hold over provisions stipulated in the agreement and the terms of a
new agreement with Philips Electronics Singapore Pte Limited was in the process of negotiation.
The primary segments that the Ronson brand targets include cooking, food preparation, and beverage
and to a lesser extent homecare and personal care.
The Goldair brand includes heating and cooling products distributed in Australia, whilst Keurig is a
leader in single-cup coffee brewing products in North America.
16
17
Breville management, Kambrook marketing and product development strategy
Breville Group Limited, FY09 annual report
16
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ANNEXURE B
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Section 4 – Profile of Breville
Homewares
In addition to small electrical appliances, Breville has historically distributed homeware products.
Although this part of the business has effectively been wound down in the US, Breville continues to
operate a homewares division in Canada and is the exclusive distributor in North America for Scanpan:
Brand name
Scanpan
Ownership status
Exclusive distributor in
North America
Product/s
Cookware
Logo
Breville has a three year exclusive distribution agreement with Scanpan A/S relating to the Scanpan
range of cookware in the North American market. Other homeware brands that Breville has owned
historically include Metro, Mayfair and Jackson and Arcosteel, whilst Laura Ashley is licensed.
Product development / sourcing
Breville invests in the development and construction of the tools / moulds for the majority of its Breville
products rather than outsourcing this process to a manufacturer. As a result, the company controls the
product development and maintains the ownership of intellectual property. All product development is
facilitated in Australia. Production is outsourced to original equipment manufacturers (OEM) mainly in
Asia.
Breville’s Asia business, based in Hong Kong currently undertakes sourcing, quality control, shipping
and administration for all products (both owned and licensed) in the electrical appliances division. The
Asia business is also responsible for all international sales outside Australia, New Zealand and North
America.
In addition, Breville has relationships with a number of European distributors who use the Breville
products to on-sell to its customers under their own brands.
Distribution
The key channels to market for each of the branded product lines are via department stores, discount
department stores, independent retailers and specialist electrical retailers.
17
89
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
4.4.
Strengths, weaknesses, opportunities and threats
The following table outlines strengths, weaknesses, opportunities and threats (SWOT) for Breville prior
to the implementation of the Offer.
Strengths
 Breville has a recognised portfolio of brands
and holds a large market share in both
Australia and New Zealand.
 Through its various brands, Breville targets
a number of demographics to increase their
market capture in the small appliances
industry as a whole.
 Breville has existing platforms in North
America and Asia to facilitate further
growth. Breville holds the Breville brand
name in most regions outside of UK and
Europe.
 Experienced management team.
 Breville has significant product
development and innovation capabilities
based in Sydney.
Weaknesses
 The Australian small appliance market is
mature. Breville already has a large market
share thereby limiting potential growth
opportunities.
 The Australian, New Zealand, US and
Canadian small electrical appliance
markets are highly competitive with a large
number of market participants and few
barriers to entry.
 Breville does not own the rights to the
Breville brand in the UK or Europe
 Sales are subject to seasonal fluctuations,
with peak demand leading up to Christmas.
Trading during this period has a significant
impact on Breville’s financial performance.
Opportunities
 There are further opportunities for
expansion within existing international
markets, particularly given the expected
stabilisation in North America and Europe
subsequent to the economic downturn.
 There are further opportunities to distribute
Breville products under alternative brands
in regions where the Breville brand name is
not held (broadly UK and Europe).
 Opportunity to sell in countries where the
Breville brand name is held but not
currently utilised.
 Growth in GDP and improvement in
consumer sentiment is expected and has
the potential to impact demand.
Threats
 Breville does not have manufacturing
facilities and any disruption to its supply
chain could have a material impact on the
business.
 The success of each of Breville’s brands
depends upon its ability to identify and
respond to consumer trends and to develop
innovative products.
 Breville has a net exposure to movements
in the US dollar for manufactured product.
Adverse movements in exchange rates may
materially impact Breville’s financial
performance.
 The loss of key personnel could have a
material impact on Breville’s earnings or
growth prospects.
 Retailers may elect to source ‘home brand’
or ‘manufacturer branded’ products rather
than Breville brands.
 Breville is affected by general business
cycles and economic conditions including
interest rates, inflation, disposable income
levels, consumer sentiment, population
growth and population demographics.
Source: PwC Securities analysis, IBISWorld Household appliance wholesaling, September 2009
18
90
ANNEXURE B
Independent Expert’s Report
Section 4 - Profile of Breville
_________________________________________________________________________________
4.5.
Financial Performance
Breville’s forecast financial performance for the year ending 30 June 2010 and comparative audited
results for each of the years ended 30 June 2007 through 2009 are presented below.
30-Jun-07
34
Audited
$'m
1
Revenue
Gross profit
Margin
Underlying EBITDA
Margin
EBITDA
2
Margin
EBIT
30-Jun-08
5
Audited
Margin
30-Jun-10
Forecast
372.8
410.2
431.9
421.7
104.0
120.6
123.0
123.3
34.7
35.3
33.6
38.7
30.2
37.2
30.0
38.6
26.3
31.9
23.4
31.3
27.9%
9.3%
29.4%
8.1%
2
30-Jun-09
5
Audited
7.0%
8.6%
9.1%
7.8%
28.5%
7.8%
6.9%
5.4%
29.2%
9.2%
9.2%
7.4%
NPBT
2
21.5
26.5
15.6
27.0
NPAT
2
16.8
20.9
11.8
19.8
Margin
5.8%
Margin
4.5%
6.5%
5.1%
3.6%
2.7%
6.4%
4.7%
Source: Breville Group Limited annual reports and management accounts
1. The manner in which revenue is reported changed after FY07 due to the level of rebates adjusted for. Growth rates and
margins are impacted by this and are therefore not directly comparable from year to year.
2. After significant items
3. Continuing operations only.
4. FY07 sourced from comparative figures from June 2008 annual report.
5. FY08 and FY09 sourced from June 2009 annual report.
Any small differences are due to rounding
Historic performance
Revenue growth from 2007 to 2009 is primarily attributable to a gradually increasing level of revenue
generated from the North American operations, in line with the establishment of the platform there.
Despite the growth in revenue, the underlying EBITDA (normalised excluding the impact of one-off and
extraordinary items) decreased from $34.7 million for the year ended 30 June 2007 to $33.6 million for
the year ended 30 June 2009. EBITDA declined approximately 4.9% from 30 June 2008 to 30 June
2009. This decline was primarily attributable to:





18
rising commodity and factory prices (not including China). In New Zealand, prices increased in
all markets in which Breville has a presence throughout the year in an attempt to protect
18
margins
rationalisation of the range of North American non-electrical product ranges (homewares). This
is in line with the focus shifting away from the homewares segment and focusing on the
establishment of small electrical appliances
sales in Europe were impacted by international distributors and retailers consolidating stock
levels (as a means of freeing up capital)
volatility in the foreign exchange rates
lower margins associated with exiting the US homewares category.
Macquarie Research Equities, Breville Group Limited, 25 August 2009
19
91
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
Generally in the last financial year, the international market, in particular North America, has been
challenging, volatile and has been marred by a fall in consumer confidence and demand. Although
Breville has had a platform in place in the US for approximately seven years an appropriate return is
yet to be realised on this investment. This is evident in Appendix D where the segment analysis
indicates that the North American performance has been the lowest contributor to EBITDA for the year
ended 30 June 2009, and historically.
Performance in the Australian market for the year ending 30 June 2009 saw further growth in sales
and profit, driven primarily by the launch and successful sell-through of new products and improved
sales mix (higher price point products) and the success of the multi-brand strategy (combined Breville
and Kambrook brands).
Group earnings before interest and tax (EBIT) decreased from $26.3 million for the year ended 30
June 2007 to $23.4 million for the year ended 30 June 2009. The decrease of $2.8 million is greater
than the $0.2 million decrease in EBITDA over the same period, reflecting an increase in amortised
development costs.
Warranty provision
The warranty provision relates to the expenditure incurred to settle liabilities relating to warranties and
faulty goods. Breville’s warranty provision as a proportion of total revenue was between 1.8% and
2.2% for the three years ended 30 June 2009.
One-off / extraordinary items
For the year ended 30 June 2009 there were one-off / extraordinary items that were accounted for by
Breville:
 redundancy costs: one-off costs incurred in the year ended 30 June 2009 following the
decision to exit the homewares business, and broader redundancies across the group
 volatility in the foreign exchange rates: although the impact of movements has been partially
offset by contracted hedges that Breville has in place, an expense of $2.0 million was incurred
during the year ended 30 June 2009, the majority of which related to non-trading mark-tomarket foreign exchange losses on intercompany loans (no cash impact).
Forecast 30 June 2010 financial performance
YTD trading performance as at 30 September 2009 has exceeded expectations, particularly in the
Australian and North American markets with improved trading conditions and the benefits of the recent
cost reductions being realised, and is reflected in an improved EBITDA margin.
20
92
ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
Breville’s forecast for the year ending 30 June 2010 reflects:







Breville’s sales are forecast to decrease 2.4% in Australian dollars (AUD) from 30 June 2009
primarily due to unfavourable foreign exchange translation rates
sales in Australia are expected to increase by 5.7% from 30 June 2009 driven by new product
development through the Breville and Kambrook brands
sales in New Zealand are estimated to decrease by 11.0% (in AUD) from 30 June 2009 due to
difficult trading conditions and unfavourable foreign exchange movements
adverse foreign exchange movements will also contribute to a decrease in sales in Asia of
12.1% (in AUD) from 30 June 2009. However, ignoring these impacts, Asia is expected to
increase sales by 4.8% (in Hong Kong dollars) from 30 June 2009 due to improved trading
conditions in Europe
sales in the US are expected to decrease by 6.6% (in US dollars) for the year ending 30 June
2010, however this is expected to be offset by growth of 26.9% in Canadian dollars in Canada.
The North American market is expected to be impacted by difficult trading conditions and the
continuing reduction of the homewares segment, however this is expected to be countered by
the procurement of an exclusive distribution agreement in Canada
Breville’s pro-forma EBITDA is forecast to increase by 15.5% from 30 June 2009, contributed
by growth in Australia (7.3%) and New Zealand (2.8%) due to a focus on higher margin
products and management of cost structure
pro-forma EBITDA in Asia (in AUD) is anticipated to decrease by 10.3% from 30 June 2009
driven by unfavourable movements in foreign exchange translation rates.
Further details of Breville’s forecast 2010 earnings are set out in the Target Statement (section 6).
A detailed breakdown of the income statement can be found in Appendix D. A breakdown of the
income statement and balance sheet for each of the operating segments (based on geography) is set
out in Appendix D. This breakdown indicates the actual relative performance of each of the geographic
regions for the years ending 30 June 2007 through to 2009 as set out in Breville’s annual financial
statements.
21
93
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
4.6.
Financial Position
Breville’s financial position as at 30 June 2008 and 2009 (audited) is summarised below.
Balance sheet
$'m
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total current assets
Non-current assets
Plant and equipment
Deferred tax assets
Intangible assets -other
Intangible asset - goodwill
Total non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Provisions
Other financial liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
Key ratios
Working capital
% revenue
Development costs
Carrying amount
Additions for the year
Net debt
30-Jun-08
Audited
30-Jun-09
Audited
10.3
62.7
80.8
5.7
159.4
6.3
68.6
68.2
1.9
145.0
9.1
17.2
41.3
24.6
92.1
8.2
15.8
43.2
24.6
91.8
251.5
236.8
52.1
23.3
3.2
3.7
0.4
82.7
42.2
9.9
2.9
6.3
6.7
68.2
30.3
3.9
2.8
37.1
119.8
131.7
29.4
5.0
2.9
37.3
105.5
131.3
91.4
22.3%
94.6
21.9%
8.3
4.8
43.3
10.5
4.9
33.0
Source: Breville Group Limited 2009 annual report
Any small differences are due to rounding
Breville’s net assets remained fairly consistent between 30 June 2008 and 30 June 2009, at
approximately $132 million. Despite the negligible overall change in net assets, there have been a
number of key movements within the balance sheet, which are explained below.
Working capital movements and seasonality
As at 30 June 2009, inventories decreased by approximately $12.6 million from the prior year. This
reflects a tightening of working capital management and the exit of the majority of the non-electrical US
homewares business. Working capital as a percentage of revenue declined marginally from 30 June
2008 to 30 June 2009.
22
94
ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
The level of inventory and working capital of Breville at any point in time is highly dependent on the
time of year. Given the nature of the industry that Breville operates in, sales fluctuate depending on the
month under analysis. For example, most of Breville’s sales are earned in the months leading up to
Christmas. Given this, the seasonality results in higher receivable and inventory balances during this
period, which consequently increases working capital and requirements for external funding.
Intangible assets
Intangible assets comprise of goodwill, development costs, capitalised software and brand names.
Development costs are internally generated and have been capitalised at cost. From 30 June 2008 to
30 June 2009, the carrying amount relating to the development costs increased by 26%, reflecting the
increased investment in product development.
Net debt
Breville’s net debt decreased from $43.3 million as at 30 June 2008 to $33.0 million as at 30 June
2009, reflecting reduced working capital requirements and realisation of inventory associated with the
wind down of the non-electrical US homewares business.
4.7.
Broker consensus and forecasts
PwC Securities has considered broker consensus forecasts for Breville to consider how the market
expectations may deviate from that assumed by management. A summary of earnings expectations
can be found below:
Summary of Breville
forecasts ($'m)
FY10
FY11
FY12
CAGR
Revenue
440.3
461.9
485.4
5.0%
4.9%
5.1%
Implied growth
EBITDA
34.9
Implied growth
EBITDA margin
EBIT
7.9%
28.1
Implied growth
EBITDA margin
6.4%
38.5
41.7
10.3%
8.3%
8.3%
8.6%
31.4
34.4
11.6%
9.6%
6.8%
7.1%
NPAT
17.6
20.3
22.5
NPAT margin
4.0%
4.4%
4.6%
9.3%
10.6%
13.1%
Source: Broker consensus (October 2009)
The FY10 consensus sales forecasts exceed the 30 June 2010 management forecast ($440 million
against $422 million), indicating that revenue will be approximately 4.4% higher than the forecast for
the year ending 30 June 2010. However at the EBIT level, the 30 June 2010 management forecast is
approximately 11% ($28.1 million against $31.3 million) higher than the broker average.
Management’s higher forecast (which is also reflected in the 2010 forecast EBITDA) reflects a reduced
cost structure partially resulting from the exit of the non-electrical US homewares business and
improved gross margins in the remaining activities compared to the prior year.
23
95
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
The analysis indicates that the analysts tracking Breville have not re-rated the company as yet to
reflect the increase in expected earnings following the closure of the US homewares business, and
improved market conditions and reduced cost structure.
The growth estimated by the brokers from the period from FY10 to FY12 for revenue is at a CAGR of
5.0% whilst EBITDA is expected to grow 9.3% per annum (CAGR).
4.8.
Share price and dividend history
Breville’s earnings per share (EPS) and dividend payments (combination of franked and unfranked
dividends) history is as follows:
Financial year
30-Jun-09
30-Jun-08
30-Jun-07
Basic EPS
Basic EPS
(cents)
(cents)
Underlying¹ Not underlying¹
12.2
9.1
15.1
16.5
16.0
N/A
Interim
dividend
(cps)²
4.0
8.5
0.0
Final
dividend
(cps)²
1.5
2.0
3.5
Total
dividend
5.5
10.5
3.5
% of EPS
paid³
44.9%
69.5%
21.8%
Source: Management, Breville Group Limited annual reports
1. Underlying EPS represents earnings from operations adjusted for non-recurring significant items. This is used as the performance hurdle for the long
term incentive plan.
2. The 2008 interim, 2007 interim and final dividends are franked, the remaining dividends paid out are unfranked.
3. % based on underlying EPS.
N/A is Not available or applicable
Cps is cents per share
As shown in the table above, basic EPS (underlying) has ranged from 12.2 cents to 16.0 cents over
the three year period from 30 June 2007 to 30 June 2009, and the payout ratio is approximately
between 22% and 70%.
A summary of the largest 20 shareholdings as at 3 September 2009 is set out below:
Shareholder
Premier Investments Limited
1
GUD Holdings Limited
2
RBC Dexia Investor Services Australia Nominees Pty Limited (PIPOOLED account)
3
J P Morgan Nominees Australia Limited
4
National Nominees Limited
5
Citicorp Nominees Pty Limited
6
Dancetown Pty Ltd
7
RBC Dexia Investor Services Australia Nominees Pty Limited (PIIC account)
8
HSBC Custody Nominees (Australia) Limited
9
10 Nofusa Pty Limited (The Hersch Family account)
11 Lew Family Investments Ltd
12 Nofusa Pty Limited (Hersch Superannuation account)
13 Cogent Nominees Pty Limited
14 Citicorp Nominees Pty Limited (CFSIL with Small Co 7 account)
15 S L Nominees Pty Ltd
16 Lew Family Investments Ltd
17 Josseck Pty Limited (Sevior Family account)
18 ANZ Nominees Limited (Cash Income account)
19 Merril Lynch (Australia) Nominees Pty Limited (Berndale account)
20 Jamber Investments Pty Ltd (The Amber Schwarz Fam account)
Total (for 20 largest shareholders)
Total issued shares
Number of
ordinary shares
32,179,977
25,073,712
13,128,733
12,731,140
7,141,780
3,554,090
3,000,000
2,820,178
2,371,118
1,559,958
1,535,718
1,000,000
959,867
722,730
711,667
631,030
626,655
454,057
452,015
450,011
111,104,436
129,515,322
% of total
issued capital
24.8%
19.4%
10.1%
9.8%
5.5%
2.7%
2.3%
2.2%
1.8%
1.2%
1.2%
0.8%
0.7%
0.6%
0.5%
0.5%
0.5%
0.4%
0.3%
0.3%
85.8%
100.0%
Source: Breville Group Limited 2009 annual report (as at 3 September 2009)
Any small differences are due to rounding
24
96
ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
Currently the top 20 shareholders have a combined holding of approximately 86% of Breville’s issued
capital. The largest shareholder is Premier Investments Limited, which combined with the interests
held by entities connected with the family of Solomon Lew, hold approximately 30.3% of Breville.
In May 2009 G.U.D acquired a 19.4% stake in Breville.
If the Offer is successful, G.U.D will hold between 50.1% and 100% of the issued share capital.
In terms of beneficial shareholders, Breville has the following substantial shareholders:




S.Lew Custodians Pty Limited, including the interests held by Premier, hold approximately
30.3% of the issued ordinary shares
G.U.D Holdings Limited which holds approximately 19.4% of the issued ordinary shares
Perpetual Limited and subsidiaries which holds approximately 13.9% of the issued ordinary
shares
Paradice Investment Management Pty Limited who holds approximately 6.9% of the issued
ordinary shares.
Share price history
Breville’s share price and trading volume history from 1 January 2006 is presented below. During this
period, Breville’s share price peaked in April 2007 at $3.25 falling to a low of $0.47 in March 2009.
Subsequent to G.U.D acquiring a 19.4% stake in Breville for $18.1 million on 29 May 2009 ($0.72 per
share the day prior) Breville’s share price has steadily increased.
At the announcement of the Offer, Breville’s share price increased form $1.50 to $2.09 and has since
traded between $2.09 and $2.43.
25
97
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
Breville trading history
30000
3.5
daily traded volume ('000)
2.5
20000
2.0
15000
1.5
10000
1.0
5000
Breville closing share price
3.0
25000
0.5
0
0.0
0
7
7
6
8
9
07
08
06
06
06
06
07
07
08
08
08
09
09
09
90
00
00
00
00
00
20
20
20
20
20
20
20
20
20
20
20
20
20
20
/1
/2
/2
/2
/2
/2
3/
5/
2/
7/
9/
2/
1/
1/
6/
8/
7/
2/
4/
6/
01
10
05
12
09
04
/0
/0
/0
/0
/0
/0
/1
/0
/0
/0
/0
/1
/0
/0
0/
9/
7/
3/
8/
6/
13
22
31
18
26
16
24
11
21
30
17
26
15
24
share volume
BRG share price
19.4% acquisition by GUD
Bid by GUD
Source: Bloomberg
Liquidity
Breville shares have historically had a low level of trading liquidity on the ASX. An analysis of the
volume weighted average share price (VWAP) of Breville and associated trade volumes and
normalised liquidity (measured by traded volume as a percentage of shares outstanding excluding
G.U.D’s purchase of 19.4%) over the preceding twelve months (from 8 October 2008) is set out below.
Share Price
VWAP analysis
Last traded price (30 October 2009)
Highest intra-day trading price (1 October 2009)
1 Day
1 week
1 Month
3 Months
6 Months
12 Months
Last Price
2.25
1.70
1.50
Highest
closing
Lowest
closing
VWAP
Traded
Volume
(millions)
1.59
1.59
1.59
1.59
1.59
1.45
1.23
0.86
0.61
0.47
1.51
1.44
1.17
0.78
0.77
0.7
1.7
11.6
99.6
112.6
Normalised
Total
Traded
Shares
Volume
Outstanding
(millions)¹
0.7
1.7
11.6
23.9
36.9
129.5
129.5
129.5
129.5
129.5
Liquidity
0.5%
1.3%
9.0%
76.9%
86.9%
Normalised
Liquidity¹
0.5%
1.3%
9.0%
18.5%
28.5%
Source: Bloomberg (as at 8 October 2009)
Note: VWAP analysed based on calender period
(1) Normalised to remove the impact of GUD purchasing a 19.4% interest in Breville on 29 May 2009
Source: Bloomberg (as at 8 October 2009)
26
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ANNEXURE B
Independent Expert’s Report
Section 4 – Profile of Breville
PwC Securities has also considered the trading liquidity exhibited by other companies listed on the
ASX. Companies considered represented rankings 1, 20, 100, 150 and 200 according to market
capitalisation as at 30 October 2009, on the basis that share trading volumes associated with
companies in the S&P ASX 200 are likely to display characteristics of liquidity and be a more
appropriate comparator group in considering liquidity than much smaller companies with market
capitalisations similar to Breville which may also exhibit signs of limited liquidity. The range of liquidity
represents the low and high levels of liquidity from the sample of companies selected.
Traded Volume
(in millions)
1 Day
1 Week
1 Month
3 Months
6 Months
12 Months
0.3
1.5
9.7
22.8
37.7
49.5
-
28.1
133.0
402.6
1,428.5
2,921.3
6,059.8
Liquidity
0.1%
0.8%
4.6%
18.5%
30.5%
40.4%
-
0.9%
6.3%
25.0%
88.6%
182.8%
412.4%
Source: Bloomberg (as at 30 October 2009)
Note: VWAP analysed based on calender period
In instances where the trading of a company’s shares is illiquid, caution must be exercised in using the
share price as an indicator of the underlying fair value of the company. In such circumstances, share
prices may either be above or below the underlying fair value of the company.
Breville’s shares have demonstrated a lower level of liquidity over the periods considered relative to
the comparator sample and display characteristics of illiquidity.
27
99
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 5 – Profile of G.U.D
5.
Profile of G.U.D
5.1.
Introduction and history of the business
G.U.D is an Australian public company listed on the ASX. The group operates through four business
units and derives income from marketing a number of brands within household appliances and
cleaning products, automobile products, locking devices, pumps and water pressure systems.
History
G.U.D began in 1940 as a manufacturer of oil filters and was incorporated in 1958 as G.U.D Holdings
Limited. In 1959, G.U.D acquired fuel pump manufacturer, Goss Gasket Manufacturing Company, and
further developed their automobile products division by acquiring Wix Corporation NZ and National
Filters in 1986. G.U.D established the Baldwin Filters joint venture in 1991 and acquired the Australian
assets of auto component manufacturer Dana Corporation in 1998.
In 1993, G.U.D purchased the lock manufacturer Lowe and Fletcher, establishing a presence in the
security locking market. In 1995, the Australian based water pump and pressure system manufacturer
Davey Products was acquired, followed by acquisitions of Contamination Control in 2005 and Monarch
Pool Systems in 2006.
In 1996, G.U.D purchased the appliance and lawnmower manufacturer Sunbeam Victa Holdings, and
household appliance manufacturer Westfil Australia. In July 2005, G.U.D acquired Australian cleaning
products manufacturer, Oates Clean. On 30 June 2008, the Victa Lawncare business was sold.
G.U.D has been listed on the Melbourne Stock Exchange and ASX since 1962 and is included in the
S&P ASX 200 index.
The company currently employs approximately 1,200 employees
Victoria, Australia.
5.2.
19
and is headquartered in Tottenham,
Business divisions
Consumer products is G.U.D’s main division accounting for approximately 55% of total revenue in the
year ended 30 June 2009 (48% of EBITDA for the same period). The water products division is the
second largest division in terms of revenue in the year ended 30 June 2009, representing 26% of total
revenue. However, in terms of EBITDA, the automobile division is the second largest, representing
20
26% of the company’s total EBITDA for the year ended 30 June 2009 .
19
20
IBISWorld, G.U.D Holdings Limited, balance date of 30 June 2009
G.U.D Holdings Limited, FY09 annual report
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Section 5 – Profile of G.U.D
FY09 breakdown of EBITDA by segment
FY09 breakdown of revenue by segment
Automobile products
17%
Security products
2%
Automobile products
26%
Security products
3%
Consumer products
48%
Water products
26%
Consumer products
55%
Water products
23%
Note: FY09 underlying segment EBITDA excludes a negative $4.7 million
unallocated portion of EBITDA.
Source: G.U.D FY09 annual report
5.3.
Products
A brief overview of each of the brands / products by the division is presented below:
Brand name
Product/s
Consumer products
Small electrical appliances
(Sunbeam) and cleaning
products (Oates)
Water products
Water supply and pool and
spa products
Automobile products
Automobile filtration, fuel
pumps, hoses and
carburettor repair kits
Locking solutions
Security products
Logo
G.U.D is a wholesaler and marketer of small electrical appliances in Australia and New Zealand under
the Sunbeam brand. The product range includes kitchen products, household products, personal use
products and products for outdoor entertaining. Activities include product design and innovation with
finished goods sourced from international manufacturers (primarily from China). Sunbeam products
are distributed through department stores, mass merchants and specialist electrical retailers.
G.U.D distributes cleaning products and accessories for household and professional purposes under
the Oates brand. The products are designed by G.U.D with finished products primarily sourced from
foreign manufacturers. The distribution channels for the Oates products are grocery and hardware
retailers, mass merchants, and specialist distributors of commercial and industrial cleaning products.
The water products division commenced operations after the acquisition of Davey Products and has
expanded to also manufacture and source internationally a range of products relating to water supply
and pool and spa. The division is mainly represented by the Davey pumps brand. Davey pump
29
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Section 5 – Profile of G.U.D
products are manufactured by G.U.D and distributed to the market through a range of channels,
including plumbing retailers, specialist pool and spa retailers, trade distributors, and specialist water
pump and irrigation distributors. The water products division also includes a few other brands that are
sourced internationally.
The automobile products division comprises the Ryco, Westfil and Goss brands. Automobile filtration
products are imported and marketed in Australia and New Zealand under the Ryco and Westfil brands,
primarily in the aftermarket. The Goss product range is focussed on fuel pumps, hoses and carburettor
repair kits. All these products are distributed via automobile aftermarket wholesalers and retailers.
The security products division comprises the Lock Focus brand. Lock Focus manufactures locking
solutions for equipment manufacturers. The division combines its manufactured range with imported
products.
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Section 5 – Profile of G.U.D
5.4.
Strength, weaknesses, opportunities and threats
SWOT analysis
The following table outlines strengths, weaknesses, opportunities and threats associated with G.U.D.
Strengths
 G.U.D has a recognised portfolio of brands
and holds a large market share in both
Australia and New Zealand.
 Diversification of operations allows G.U.D
to target a variety of customers and is less
reliant on one particular segment.
 G.U.D’s business diversification reduces
impact of seasonal fluctuations of
Sunbeam.
Opportunities
 There is a potential for G.U.D to expand
into the international market through
acquisitions or to distribute Sunbeam
products under alternative brands.
 Growth in GDP and improvement in
consumer sentiment is expected and has
the potential to impact demand.
Weaknesses
 G.U.D currently has a narrow geographic
penetration. G.U.D does not own the rights
to the Sunbeam brand outside of Australia
and New Zealand limiting growth prospects.
 The Australian small appliance market is
mature. G.U.D already has a large portion
of the market share thereby limiting
potential organic growth opportunities.
 The Australian and New Zealand small
electrical appliance markets are highly
competitive, with a large number of market
participants and few barriers to entry.
Threats
The small electrical appliances market /
industry is composed of a large number of
small players making it a very competitive
environment.

G.U.D has an exposure to movements in
the US dollar for manufactured product.
Adverse movements in exchange rates may
materially impact financial performance.

Retailers may elect to source ‘home brand’
or ‘manufacturer branded’ products rather
than G.U.D brands.

G.U.D is affected by general business
cycles and economic conditions including
interest rates, inflation, disposable income
levels, consumer sentiment, population
growth and population demographics.

Source: PwC Securities analysis, IBISWorld Household Appliance Wholesaling, September 2009
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Section 5 – Profile of G.U.D
5.5.
Financial performance
G.U.D’s audited results for the years ended 30 June 2007 through to 2009 are summarised below:
Income statement
$'m
30-Jun-07
Audited
30-Jun-08
Audited¹
30-Jun-09
Audited
Revenue
518.9
469.3
468.3
Gross profit
191.4
188.4
188.6
Margin
EBITDA
EBITDA margin
EBIT
36.9%
69.7
13.4%
56.9
40.1%
67.9
14.5%
55.3
40.3%
71.3
15.2%
60.8
EBIT margin
11.0%
11.8%
NPBT
47.7
45.7
9.7%
10.5%
NPAT (continuing operations)
33.6
32.3
34.8
NPBT margin
NPAT margin
9.2%
6.5%
6.9%
13.0%
49.3
7.4%
Source: GUD Holdings Limited annual reports
1. Restated to reflect the modification of the income statement classification of interest income and fair
value gains / losses on interest rate hedging financial instruments to include these items in finance income
/ expense to more appropiately portray the nature of these transactions.
Any small differences are due to rounding
Historic performance
Revenue decreased from $518.9 million for the year ended 30 June 2007 to $468.3 million for the year
ended 30 June 2009, representing a CAGR of -5.0% per annum. This fall is attributable to the sale of
the Victa Lawncare business on 30 June 2008.
Despite this, EBITDA increased from $69.7 million as at 30 June 2007 to $71.3 million for the year
ended 30 June 2009, representing a CAGR of 1.1% per annum. Growth for the year ended 30 June
2009 is attributable to the consumer products division, in particular Oates, and the automotive products
division, offset by reduced demand in the water products and security products segments.
For the year ended 30 June 2009, an expense of $3.7 million was incurred relating to the restructuring
of interest rate hedges to take advantage of declining interest rates, and had an offsetting impact of
reducing net finance expenses by $1.9 million from 30 June 2008.
In general, G.U.D was impacted by the global financial crisis, through declining consumer confidence
and in particular the depreciating Australian dollar, given G.U.D’s businesses import the majority of the
final products sold. As a means of mitigating the impact of the volatility in the foreign exchange rates,
G.U.D increased prices across all brands, reduced product costs on the basis of declining commodity
prices and trimmed overhead costs.
A detailed breakdown of the income statement can be found in Appendix E. A breakdown of the
income statement and balance sheet for each of the operating segments (based on business division)
is also set out in Appendix E for the years ending 30 June 2007 through to 30 June 2009.
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Section 5 – Profile of G.U.D
5.6.
Financial position
G.U.D’s consolidated financial position as at 30 June 2008 and 2009 is summarised below.
30-Jun-08
Audited
30-Jun-09
Audited
33.1
65.9
4.2
81.4
184.7
16.2
62.3
6.6
82.7
167.8
Non-current assets
Other financial assets
Property, plant and\ equipment
Deferred tax assets
Goodwill
Other intangible assets¹
Total non-current assets
4.7
20.2
0.4
42.0
50.2
117.6
24.0
19.6
0.5
42.1
49.5
135.7
TOTAL ASSETS
302.3
303.4
45.1
0.5
1.0
14.0
60.5
44.3
0.5
4.8
13.6
63.1
118.8
1.5
1.4
121.7
182.2
120.1
106.4
1.4
1.4
109.2
172.3
131.1
102.3
21.8%
100.7
21.5%
25.2
5.4
86.2
24.7
3.9
90.6
Balance sheet
$'m
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other assets
Inventories
Total current assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings and loans
Current tax payables
Provisions³
Total current liabilities
Non-current liabilities
Borrowings and loans
Deferred tax liabilities
Provisions²
Total Non-current liabilities
TOTAL LIABILITIES
NET ASSETS
Key ratios
Working capital
% revenue
Development costs
Carrying amount
Additions for the year
Net debt
Source: GUD Holdings Limited annual reports
1. Other intangible assets relate to product development costs, brand names and
trademarks and patents, licences and distribution rights.
2. Provisions relate to employee benefits, relocation, restructuring and warranty.
Any small differences are due to rounding
G.U.D’s net assets increased from $120.1 million as at 30 June 2008 to $131.1 million as at 30 June
2009.
Working capital movements and seasonality
The level of working capital has remained fairly stable at 30 June each year, both in absolute terms
and as a proportion of revenue.
Given the nature of the industry, the month of June typically represents a low level of working capital
for the company. The levels of receivables and inventory generally increase leading up to the peak
consumer buying periods (eg during the lead up to Christmas).
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Section 5 – Profile of G.U.D
Intangible assets
Intangible assets comprise of goodwill, product development costs, brand names, business name and
trademarks and patents, licences and distribution rights (arising on acquisitions). Product development
costs are internally generated and have been capitalised at cost. They are amortised over a period not
exceeding three years.
The carrying amount of product development costs has remained broadly consistent year on year.
Net debt
Net debt has been fairly consistent at 30 June in each of the years from 2008 to 2009 at between
$86.2 million and $90.6 million. At 31 December 2007 and 2008, net debt was $108.2 million and
$176.7 million respectively, reflecting the increment in funding required to finance peak working capital
requirements.
5.7.
Broker consensus and forecasts
In assessing the implied future growth prospects of G.U.D, PwC Securities has considered broker
consensus forecasts. A summary of earnings expectations can be found below:
Summary of GUD
forecasts ($'m)
FY10
FY11
FY12
CAGR
Revenue
484.9
507.2
526.9
4.2%
4.6%
3.9%
Implied growth
EBITDA
74.5
77.6
4.1%
4.0%
15.4%
15.3%
15.3%
Implied growth
EBITDA margin
EBIT
64.0
67.0
4.7%
4.5%
13.2%
13.2%
13.3%
Implied growth
EBIT margin
80.7
70.0
NPAT
39.7
41.8
43.9
NPAT margin
8.2%
8.2%
8.3%
4.1%
4.6%
5.2%
Source: Broker consensus (October 2009)
The EBIT margin is expected to remain fairly consistent each year from 2009 through 2012 at
approximately 13%. The CAGR in revenue and EBIT between 2010 and 2012 is expected to be
approximately 4.2% per annum and 4.6% per annum respectively. These anticipated growth rates are
lower than forecast by analysts for Breville. Therefore if the Offer is successful the earnings growth
rates for G.U.D will be lower than Breville on a standalone basis.
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Section 5 – Profile of G.U.D
5.8.
Share price and dividend history
G.U.D’s EPS and dividend payments (fully franked dividends) history is as follows:
Financial year
30-Jun-09
30-Jun-08
30-Jun-07
Basic EPS
(cents)¹
60.0
54.1
56.2
Interim
dividend
(cps)
27.0
30.0
27.0
Final
dividend
(cps)
33.0
38.0
34.0
Total
dividend
60.0
68.0
61.0
% of EPS
paid
100.0%
125.7%
108.6%
Source: Management, Breville Group Limited annual reports
¹ EPS based on profit from continuing operations.
On 28 July 2009, the G.U.D Board of directors reintroduced a dividend reinvestment plan (DRP).
A summary of the largest 20 shareholdings as at 14 August 2009 is set out below:
Shareholder
National Nominees Limited
1
J P Morgan Nominees Australia Limited
2
ANZ Nominees Limited (Cash Income a/c)
3
Australian Foundation Investment Company Limited
4
HSBC Custody Nominees (Australia) Limited
5
Citicorp Nominees Pty Limited
6
Argo Investments Limited
7
Cogent Nominees Pty Ltd (SMP Accounts)
8
RBC Dexia Investor Services Australia Nominees Pty Limited (PIPOOLED a/c)
9
10 Cogent Nominees Pty Ltd
11 AMP Life Limited
12 Australian Reward Investment Alliance
13 Queensland Investment Corporation
14 Citicorp Nominees Pty Limited (CFSIL CFS WS Small Comp a/c)
15 Fortis Clearing Nominees P/L (Settlement a/c)
16 Citicorp Nominees Pty Ltd (Cwlth Bank Off Super a/c)
17 UBS Nominees Pty Ltd
18 ANZ Nominees Limited (SL Cash Income a/c)
19 Equity Trustees Limited (Garnet Aust Equity Fund)
20 Mrs Jillian Anita Cobcroft
Total (for 20 largest shareholders)
Total issued shares
Number of
ordinary shares
5,050,251
4,979,905
2,504,445
2,000,000
1,966,985
1,483,505
1,320,000
976,324
871,241
799,428
503,884
448,567
427,668
396,083
386,041
367,537
264,577
230,098
211,602
209,100
25,397,241
60,124,261
% of total
issued capital
8.4%
8.3%
4.2%
3.3%
3.3%
2.5%
2.2%
1.6%
1.4%
1.3%
0.8%
0.7%
0.7%
0.7%
0.6%
0.6%
0.4%
0.4%
0.4%
0.3%
42.2%
100.0%
Source: GUD Holdings Limted 2009 annual report (as at 14 August 2009)
Any small differences are due to rounding
Currently the top 20 shareholders have a combined holding of approximately 42% of G.U.D’s issued
capital (fully paid ordinary shares). The largest shareholder is National Nominees Limited which holds
8.4% of the issued capital in G.U.D.
Share price history
G.U.D’s share price and trading volume history from 1 January 2006 is presented below. G.U.D’s
share price peaked in July 2007 at $11.70 falling to a low of $3.58 in November 2008. G.U.D’s share
price then steadily increased and closed at $8.62 preceding the announcement of the Offer on 8
October 2009. G.U.D’s shares have traded between $8.48 and $9.62 since the announcement of the
Offer and closed at $8.66 on 31 October 2009.
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Section 5 – Profile of G.U.D
3500
14.0
3000
12.0
2500
10.0
2000
8.0
1500
6.0
1000
4.0
500
2.0
0
0.0
GUD closing share price
daily traded volume ('000)
GUD trading history
6
06
07
07
08
09
06
06
06
07
07
07
08
08
08
08
09
06
09
09
00
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
/2
0/
5/
2/
9/
4/
3/
5/
7/
2/
2/
7/
9/
2/
4/
6/
1/
1/
6/
8/
01
/1
/0
/1
/0
/0
/0
/0
/0
/0
/0
/1
/0
/0
/0
/0
/1
/0
/0
/0
2/
9
7
3
8
6
3
2
1
8
6
6
4
1
1
0
7
6
5
4
1
2
3
1
2
1
2
1
2
3
1
2
1
2
Share volume
GUD share price
New share issue
Acquisition of 19.4% of Breville
Victa divestment
Bid for Breville
Source: Bloomberg
Liquidity
An analysis of the VWAP of G.U.D and associated trade volumes and liquidity (measured by traded
volume as a percentage of shares outstanding) over the preceding 12 months (from 8 October 2008) is
set out below:
Share Price
VWAP analysis
Last traded price (30 October 2009)
Highest intra-day trading price (25 September)
1 Day
1 week
1 Month
3 Months
6 Months
12 Months
Last Price
8.66
9.39
8.62
Highest
closing
Lowest
closing
VWAP
Traded
Volume
(millions)
Total
Shares
Outstanding
8.62
9.07
9.07
9.07
9.07
8.37
8.10
6.50
5.95
3.58
8.45
8.80
8.18
7.22
6.40
0.9
6.0
20.4
45.3
76.0
60.6
60.1
60.1
57.8
57.9
Liquidity
1.4%
10.0%
34.0%
78.3%
131.3%
Source: Bloomberg (as at 8 October 2009)
Note: VWAP analysed based on calender period
Source: Bloomberg (as at 8 October 2009)
A comparison of the liquidity of G.U.D and Breville (refer to section 4.8) over the same time period
indicates that G.U.D generally has a higher level of trading of its shares. This is also supported by the
analysis of trading liquidity of companies of varying market capitalisation listed on the ASX.
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Section 5 – Profile of G.U.D
Traded Volume
(in millions)
1 Day
1 Week
1 Month
3 Months
6 Months
12 Months
0.3
1.5
9.7
22.8
37.7
49.5
-
28.1
133.0
402.6
1,428.5
2,921.3
6,059.8
Liquidity
0.1%
0.8%
4.6%
18.5%
30.5%
40.4%
-
0.9%
6.3%
25.0%
88.6%
182.8%
412.4%
Source: Bloomberg (as at 30 October 2009)
Note: VWAP analysed based on calender period
Relative to the comparator group identified, G.U.D exhibits a level of liquidity that is in line with the high
range for each of the periods under analysis.
Refer to section 4.8 for further details relating to the table above.
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Section 6 – Valuation methodologies
Valuation methodologies
6.
6.1.
Introduction
There is no single generally accepted approach to determining value and the approach adopted
depends upon the specific circumstances. PwC Securities has considered common market practices
and the valuation methodologies recommended by ASIC Practice Note 43 – “Valuation Reports and
Profit Forecasts” and guidance provided by RG 111. The approaches PwC Securities has considered
are discussed below:
6.2.
Discounted cash flow (DCF) approach
DCF approaches are premised directly on the principle that the value of a company is dependant upon
the future economic benefits it can generate.
This method indicates the value of a business enterprise based on the present value of the free cash
flows that the business is expected to generate in the future. Such cash flows are discounted at a
discount rate (the cost of capital) that reflects the time value of money and the risks associated with
the forecast cash flows.
This approach is typical for companies with:




6.3.
high levels of growth
reasonably accurate forecast cash flows (preferably 5 years)
earnings or cash flows that are expected to fluctuate from year to year
irregular capital expenditure requirements.
Market based approaches
Market based approaches estimate the value of a company through reference to the market value of
comparable companies and trading in the company’s own shares. There are a number of variants
including the following three approaches:
Capitalisation of earnings
This method is commonly used for the valuation of relatively mature businesses. It involves the
application of an earnings multiple (derived from an analysis of comparable companies and/or
transactions) to an assessment of the future earnings of a business. The earnings must be
maintainable by the business and must not include one-off gains or losses. Hence, this method is
generally not appropriate for a business with fluctuating earnings. The method is appropriate for
businesses with indefinite lives where stable earnings or trends in earnings are evident.
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Section 6 – Valuation methodologies
Dividend based valuations
Dividend based valuations involve the capitalising the future maintainable dividend payments of the
company. The capitalisation rate reflects the investor’s required rate of return. This method is
appropriate for companies with:



stable growth rates and profits
high payout ratios that are an approximation of free cash flows to equity
stable leverage.
ASX market price valuation
ASX Market Price Valuation is an indication of value if:


the shares are actively traded
the market is assumed to be efficient.
This valuation approach can be used at the prevailing spot price at the valuation date or VWAP across
a given period up to the valuation date, such as 30, 60 or 90 days.
6.4.
Asset based approach
This method analyses the value of the assets used in the business. This is done by separating the
business into assets which can be readily sold and determining a value for each asset based on the
net proceeds that could be obtained in the market place if the asset were sold. The value of the assets
can be determined in the context of:



orderly realisation: this method estimates the value by determining the net assets of the
underlying business including any allowances or costs involved in carrying out the sale. This
method is not a valuation under a forced liquidation where the value could be materially
different from their market value
liquidation: this method is based on the premise of a forced sale in terms of liquidation. In this
case, the price the assets could be sold at (and hence value) is typically materially lower than
their market value
going concern: this method estimates the value of the net assets on a replacement cost basis,
but does not consider realisation costs.
This approach is typically used for asset rich companies, dormant companies or loss making
companies. The asset based approach is usually inappropriate for businesses in which intangible
assets are significant, the value of which is usually best determined by reference to future income
streams.
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Section 6 – Valuation methodologies
6.5.
Approach adopted
Breville
Having regard to the business activities performed, the nature of assets held and the financial
information available, PwC Securities has adopted the capitalisation of earnings as the primary
valuation approach for Breville.
PwC Securities has adopted the capitalisation of earnings as the primary valuation approach based on
the following:



the established nature of the Breville businesses
the availability of information in respect of broadly comparable companies
the relative stability of earnings trends for Breville.
As a cross-check PwC Securities has compared the value derived for Breville against a high level DCF
valuation and to recent ASX share prices immediately preceding the announcement of the Offer for
each of the corresponding companies.
G.U.D
In assessing the value of G.U.D, PwC Securities has had primary regard to the G.U.D share price and
associated VWAP analysis, based on:



the trading liquidity of G.U.D
the assumptions that the market is efficient
PwC Securities has only had access to publicly available information.
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Section 7 – Valuation of Breville
7.
Valuation of Breville
7.1.
Approach
PwC Securities has adopted the capitalisation of maintainable earnings as the primary valuation
methodology, specifically a capitalisation of EBITDA. As a cross-check, PwC Securities has performed
a high level DCF valuation and considered the price at which Breville’s shares have traded on the ASX
prior to the Offer.
In selecting the capitalisation of EBITDA as the primary methodology, PwC Securities has had regard
to the fact that EBITDA is not distorted by the effects of different gearing levels, taxation positions or
depreciation / amortisation of comparable companies. Given that product development costs and
associated amortisation are a significant issue in this industry, consideration of EBITDA removes any
associated distortion of differing accounting treatments.
The application of the capitalisation of EBITDA approach involves:



7.2.
estimating the current level of maintainable EBITDA for the business
determining an appropriate capitalisation multiple
adjusting the derived value for surplus assets or liabilities.
Estimate of future maintainable EBITDA
In determining a future maintainable EBITDA for Breville, PwC Securities has primarily had regard to
the underlying forecast EBITDA (normalised) for the year ending 30 June 2010 and to a lesser extent
historic underlying EBITDA for the year ended 30 June 2009 as set out in section 4.5 of this report.
The FY10 forecast is more representative of the operating focus of the business going forward and a
more appropriate earnings base to consider maintainable earnings, as it:



excludes any material impact from the exit of the US homewares business in FY09
excludes the impact of the challenging international economic environment brought about by
the global financial crisis
incorporates the better than expected financial performance for the three months to 30
September 2009.
PwC Securities has also considered potential normalisation adjustments to account for one-off or nonrecurring items. In its analysis of Breville’s financial statements, PwC Securities has identified one-off
adjustments relating to:

an onerous lease expense relating to the lease of a warehouse in Australia that is currently
vacant and expected to incur costs in FY10 of approximately $2.5 million
After adjusting the underlying FY10 EBITDA of $38.7 million (section 4.5) for the normalisation factors
outlined above (of net approximately $2.5 million) to derive a normalised EBITDA of approximately
41
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 7 – Valuation of Breville
$41.1 million, PwC Securities has assessed the future maintainable EBITDA for Breville to be
approximately $41 million.
7.3.
Estimate of multiple
PwC Securities considers that an EBITDA multiple range of between 8.0 times and 8.5 times is
appropriate to capitalise the estimated future maintainable EBITDA of the business and reflects a
controlling interest in Breville. In adopting the capitalisation multiple, PwC Securities has taken into
account:







reported EBITDA multiples of Breville, G.U.D and other broadly comparable listed companies
forecast EBITDA multiples for comparable listed companies and of Breville based on EBITDA
forecasts prepared by market commentators
implied EBITDA multiples for relevant transactions in the small wholesale appliance industry,
where sufficient information is disclosed to reliably determine implied multiples
the relative size of Breville’s business activities as compared to the broadly comparable
companies
the risk profile of Breville relative to broadly comparable companies including earnings
diversification
Breville’s market position and potential for growth in earnings relative to broadly comparable
companies
other relevant factors including general economic conditions and degree of relative risk.
Comparable company multiples
There are very few companies engaged in directly comparable or similar businesses to Breville that
are listed on the ASX. Accordingly, PwC Securities has also had regard to the capitalisation multiples
of broadly comparable companies from other countries.
The following table provides a summary of historic and forecast FY10 earnings multiples of broadly
comparable Australian and international listed companies with operations in the small household
appliances industry. Inherently, the multiples reflect the value of a minority interest, and do not reflect
any premium for control. A more detailed summary, including brief descriptions of the business
activities of each company, is provided in Appendix F.
42
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ANNEXURE B
Independent Expert’s Report
Section 7 – Valuation of Breville
Company
Country
Financial year
end
Market
capitalisation
($'m)¹
Australia
Breville Group Limited²
G.U.D Holdings Limited
Mean
Australia
Australia
30 Jun
30 Jun
Hong Kong
South Africa
USA
South Africa
France
Italy
New Zealand
31 Mar
30 Jun
31 Dec
31 Aug
31 Dec
31 Dec
31 Mar
International
Allan International Holdings Ltd
Amalgamated Appliances Holdings
Jarden Corp
Nu-World Holdings Ltd
SEB SA
De'Longhi SpA
Fisher & Paykel Appliances Holdings Ltd³
Mean
Median
Overall mean
Overall median
LTM EBITDA
multiple
FY10 EBITDA
multiple
LTM EBIT
multiple
FY10 EBIT
multiple
LTM P/E
multiple
FY10 P/E
Multiple
194.3
522.4
7.2x
8.6x
7.9x
6.8x
8.2x
7.5x
8.7x
10.1x
9.4x
8.4x
9.6x
9.0x
18.0x
15.7x
16.9x
10.4x
13.1x
11.7x
77.5
50.9
2,648.8
52.9
3,097.2
711.7
381.8
1.3x
N/M
7.6x
11.1x
6.7x
4.7x
6.8x
6.4x
6.8x
N/A
N/M
7.1x
N/A
6.4x
5.0x
7.2x
6.4x
6.7x
1.6x
N/M
9.5x
14.3x
8.5x
6.1x
12.1x
8.7x
9.0x
N/A
N/A
N/A
N/A
8.8x
7.2x
12.9x
9.6x
8.8x
6.1x
N/M
12.4x
35.6x
11.9x
12.2x
14.1x
15.4x
12.3x
N/A
N/M
10.7x
N/A
12.1x
12.9x
N/M
11.9x
12.1x
6.7x
7.0x
6.8x
7.0x
8.9x
9.1x
9.4x
8.8x
15.8x
13.3x
11.8x
12.1x
Source: Bloomberg, CapitalIQ, company financial statements.
EBITDA, EBIT and NPAT normalised as per CapitalIQ adjustments.
1. Market Capitalisation as at 30 October 2009 (market cap of Breville and G.U.D calculated at share price at close of 08/10/2009 i.e. pre Offer).
2. Net Debt of Breville recalculated by PwC to reflect mid point of average debt ($40 million -$ 45million). Earnings based on consensus forecasts.
3. Fisher & Paykel Appliances Holdings Ltd includes finance business
N/M is not meaningful (negative value)
N/A is not available
LTM is last twelve months
In analysing the comparable company EBITDA multiples, PwC Securities notes the following:





the forecast FY10 EBITDA multiples of comparable companies range from 5.0 times for
De’Longhi to 8.2 times for G.U.D, with an overall mean of 6.8 times and median of 7.0 times
PwC Securities has determined forecast FY10 EBITDA multiples based on average broker
estimates. PwC Securities has also determined historic and forecast FY10 EBIT and P/E
multiples as a cross-check, based on publicly available information
the volatility seen in the share prices and market capitalisation relative to earnings over the
course of the past 18 months may have impacted the multiples, particularly for those
companies operating in countries that have been more adversely affected by the global
financial crisis
Australian comparable companies are limited, with G.U.D being the only comparable company
operating within the small household appliance industry in Australia. International companies
with operations similar to that of Breville are not as directly comparable due to differences
between Australian and international growth rates, business activities performed, inflation
expectations, competitive environments, market conditions and other factors that affect
demand, profitability, risk and growth prospects of each company
in determining an appropriate EBITDA multiple PwC Securities has had regard to both the
historic LTM and forecast FY10 multiples. The FY10 data however provides the most current
market perspective regarding the expected performance of Breville and the comparable
companies, and as such, a greater weighting has been placed on FY10 multiples in
determining an appropriate EBITDA capitalisation multiple.
Transaction multiples
PwC Securities has also had regard to successful transaction multiples within the household appliance
industry, as provided in the table below. These reported multiples include a takeover premium.
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 7 – Valuation of Breville
Date announced
Target name
Target country
Acquirer
% shares
acquired
12/09/2007
14/09/2006
19/09/2004
12/06/2003
27/08/1998
Mean
Median
BEP International Holdings Ltd
Applica Inc (nka Salton Inc)
American Household, Inc
Saeco International Group SpA
Toastmaster, Inc
Hong Kong
USA
USA
Italy
USA
Mr. Zhang Xi
Harbinger Capital Partners
Jarden Corp
PAI Partners
Salton Inc
71.5%
59.9%
100.0%
66.9%
100.0%
Value of
transaction
Implied
(local currency EV/EBITDA
in millions)
mutiple
144.4
286.8
875.0
626.3
111.0
6.8x
23.8x
12.6x
8.7x
11.3x
12.6x
11.3x
Source: CapitalIQ and other publicy available information
EV is enterprise value
In analysing the comparable transaction EBITDA multiples, PwC Securities notes the following:




the average transaction EBITDA multiples are likely to be higher than the average of the
trading multiples as they will include a takeover premium (reflecting control and synergistic
benefits)
there were no directly comparable recent transactions in Australia
the transactions are all in excess of two years old and represent broader rather than direct
comparability to Breville
the median is likely to more accurately reflect a comparable transaction multiple due to the
skewing effect of the Applica Inc / Harbinger Capital Partners transaction.
Controlling basis
ASIC RG 111 requires the valuation of the target be performed assuming 100% ownership, therefore
including a premium for control. Evidence from studies of market data suggest that equity takeover
premiums are generally in the range of 20% to 40% for successful takeovers. Takeover premiums vary
significantly across individual transactions and have a number of potential elements including:






a ‘pure control premium’ to achieve 100% control of the existing cash flows of the business
a premium to motivate existing holders of the shares who have a range of views on value to
sell en bloc (ie investors in a listed company inevitably have divergent views on value)
allowance for anticipated potential to improve cash flows in the business as a standalone
entity (to the extent that this potential is not reflected in the share price)
some element for the synergies that an industry acquirer would realise following an acquisition
of the target
potentially some element of the strategic value that one specific buyer of the business could
generate
anxiety to complete a transaction.
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ANNEXURE B
Independent Expert’s Report
Section 7 – Valuation of Breville
Within the takeover premium a ‘pure control premium’ exists which reflects the acquirer’s ability to:




directly access gross cash flows as opposed to only dividend flows determined by the target’s
directors
trade assets of the business
borrow directly against assets of the business
take advantage of tax consolidation and offset different tax profiles.
The extent of takeover premium observed for a particular acquisition partly reflects how far the pre-bid
price incorporated an expectation of a takeover bid. Day to day share prices for companies may
incorporate elements of pure control and takeover premiums at certain times because of speculation of
a takeover transaction occurring.
Having regard to these factors, PwC Securities has assessed a premium for pure control (i.e.
excluding synergies) for Breville to be 10%. This assessment is lower than the observed average of
takeover premiums, however it excludes any share of synergy benefits, which have been separately
incorporated into the value assessment of a Breville share.
7.4.
Non-core surplus assets, liabilities and net debt
Surplus assets are those which are not essential to producing the estimated future cash flows or which
are in excess of the required operating assets. Based on the assessment of the financials, PwC
Securities has not identified any assets considered surplus in nature.
A surplus liability of $6.5 million relating to the onerous lease has been assessed based on the most
recent written offer received by Breville to sub-lease a portion of the warehouse, utilising a DCF
approach for the remaining tenure of the head lease and a post tax discount rate of 8.0%.
In estimating an appropriate level of debt for assessing the equity value of Breville, consideration has
been given to the average monthly level of debt over FY09 and forecast monthly debt levels for FY10.
This has been done to remove the impact of seasonality, with peak funding leading up to Christmas
and a subsequent decline afterwards. PwC Securities has adopted a level of net debt of between
$40.0 million and $45.0 million, after including cash proceeds from the exercise of outstanding
employee performance options of approximately $1.0 million.
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 7 – Valuation of Breville
7.5.
Synergies
In the event the Offer is successful, synergy benefits are expected to accrue to those Breville
shareholders who accept the Offer and hold a share interest in G.U.D. If G.U.D successfully acquire
100% of the shares in Breville, benefits are expected to be realised over a relatively short period of
time and with relatively minor realisation costs outside of staff redundancies, and represent:






savings in listing and associated public company administration costs
cost savings from rationalisation of common management functions, operational roles and
premises
improvement in freight rates from increased scale
improvements in procurement terms from increased scale
reduced warranty expenses
improved sales performance from the sale of Sunbeam products offshore utilising the Breville
brand.
Breville management have estimated maintainable pre-tax cost savings and incremental revenue
opportunities (through incremental volumes) of between $20.0 million to $25.0 million per annum could
be realised by G.U.D by obtaining 100% of Breville. Breville management have also estimated that
benefits of approximately $20.0 million to $30.0 million per annum could be realised by other potential
international purchasers on a similar basis. The estimated cost to realise these synergies is
approximately $5.0 million.
There is some risk that all identified benefits will not be fully realised, that they will take longer to
achieve in practice, may reduce the expected benefit, that the implementation costs will be higher than
expected or competitors take action.
Breville management have also estimated the level of maintainable pre-tax cost saving opportunities if
G.U.D successfully acquired 50.1% of Breville to be between $1 million and $2 million per annum
(broadly similar for potential international purchasers). Realised benefits are expected to be limited to
freight savings, as the requirement to maintain Breville as a listed company (and its associated cost
structure) operating in the best interests of its shareholders limits the potential synergy benefits which
might be realised relative to those anticipated to be available at 100% ownership.
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ANNEXURE B
Independent Expert’s Report
Section 7 – Valuation of Breville
PwC Securities has assessed the value of synergies expected to be available in the event that G.U.D
successfully achieve a 100% interest in Breville, or an international party acquires a controlling interest
in Breville, utilising a DCF methodology. The value has been assessed to be between $155.0 million
and $167.5 million after considering:






Breville management’s assessment of annual synergy benefits available to G.U.D of $20.0
million to $25.0 million and $20.0 million to $30.0 million for potential international buyers
risk associated with achieving each category of benefit
costs associated with realisation
time to achieve synergies
growth rates of 2.0% to 2.5%
post tax discount rates in the range of 13.25% to 16.75%.
The discount rate selected is higher than the discount rate applied to cross-check the valuation of
Breville using a DCF (refer to section 7.7) and reflect the higher uncertainty associated with realising
the synergistic cash flow benefits.
It is reasonable that a target company shareholders expect to participate to some extent in benefits
associated with an acquirer obtaining control of its shares. The extent of benefit realised by the target’s
shareholders is dependent upon the synergies being available to more than one buyer of the company
and the competitive nature of the bidding process for the company’s shares.
The level of synergies anticipated to be realised if the Offer is successful at 100% are significant. A
similar level of synergies would be expected to be realised if a potential international investor also
acquired a controlling interest in Breville.
Given the size of the expected synergies and that they are available to more than one potential buyer
(assuming all of Breville’s shares are able to be acquired), PwC Securities considers that Breville
shareholders should be entitled to receive 50% of the assessed synergy value in considering the
standalone value of Breville on a controlling basis.
On this basis PwC Securities has included a value of between $77.5 million and $83.8 million in the
assessment of value of a Breville share, representing between $0.59 to $0.64 per Breville share. The
range represents 50% of the assessed value of synergies expected to be available if G.U.D obtains
100% of Breville’s shares it does not currently own.
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 7 – Valuation of Breville
7.6.
Summary value of Breville
PwC Securities has assessed the value of a Breville share to be between $2.73 and $2.90 per share,
on a standalone controlling basis (assuming a 10% premium for pure control and incorporating 50% of
expected synergistic benefits) and between $1.95 and $2.05 on a minority basis. These are calculated
as follows:
Low
High
$m
$m
EBITDA
41.0
41.0
Multiple (times)
8.0x
8.5x
Enterprise value
328.0
348.5
Less: Average debt
(40.0)
(45.0)
Add: synergies paid
77.5
83.8
Less: onerous lease
(6.5)
(6.5)
Equity value (control basis)
359.0
380.8
Value per Breville share $ (fully diluted)
2.73
2.90
Less: synergies
77.5
83.8
281.5
297.0
Equity value (control basis excluding synergies)
Value per Breville share $ (fully diluted)
2.14
2.26
Less control premium at 10%
(25.6)
(27.0)
Equity value (minority basis)
255.9
270.0
1.95
2.05
Value per Breville share $ (fully diluted)
7.7.
Valuation cross-checks
Comparison with trading market price of a Breville share
Prior to the announcement date, Breville shares traded at the following spot and VWAP prices:
As at 8 October 2009 (prior to Offer)
Closing price 8 October 2009
VWAP previous 1 month
VWAP previous 3 month
VWAP previous 6 month
$1.50
$1.44
$1.17
$0.78
Source: Bloomberg (as at 8 October 2009)
Following the announcement of the Offer, Breville’s share price has ranged from a high of $2.43 on 23
October 2009 to a low of $2.09 on 9 October 2009.
In considering the prices above, PwC Securities notes that:



Breville’s shares are not traded as actively as larger companies listed on the ASX. As
highlighted in section 4.8, Breville’s top four shareholders and associates hold approximately
70% of Breville. Section 4.8 also highlights the relatively low level of liquidity historically
displayed by Breville shares, when compared to G.U.D over the same period (section 5.8)
the traded prices reflect minority interests in Breville shares
the traded prices do not appear to reflect any re-rating of Breville following closure of its
homewares business or improved earnings expectations
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ANNEXURE B
Independent Expert’s Report
Section 7 – Valuation of Breville

Breville’s share price since the announcement of the bid approximates the share price of
G.U.D adjusted for the terms of the Offer of four Breville shares for one G.U.D share.
The valuation range for Breville shares determined by PwC Securities on a control basis (excluding
synergies) lies within the range of share prices observed since the announcement of the Offer on 9
October 2009.
DCF valuation
PwC Securities has compared the range of values determined utilising the capitalisation of earnings
methodology (including a premium for pure control and share of expected synergies) to that derived by
a high level DCF methodology. The high level DCF analysis derives a value range for a Breville share
of between $2.65 and $3.00 based on the following:






Breville management’s internal three year forecast extrapolated and adjusted by PwC
Securities to account for differences in growth expectations and margin
estimated working capital and capital expenditure requirements
an estimate of the value of synergies consistent with that outlined in section 7.5
a terminal value utilising long term growth rates in the range of 2.5% to 3.0%
a tax rate of 30%
a post tax weighted average cost of capital of 11.5%.
The range of values per share ($2.65 and $3.00) determined by the high level DCF analysis support
the range of values determined using the capitalisation of earnings methodology ($2.73 and $2.90).
49
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 8 – Valuation of G.U.D
8.
Valuation of G.U.D
8.1.
The Offer
If Breville shareholders accept the Offer then, subject to the conditions precedent, Breville
shareholders will receive one share in G.U.D for every four shares held in Breville. The Offer is subject
to G.U.D obtaining a post-Offer interest in Breville of at least 50.1% (inclusive of its pre-Offer holding in
Breville). Accordingly, if the Offer is successful, G.U.D will hold an interest in Breville of between
50.1% and 100%.
8.2.
Basis for assessing the value of the consideration offered
PwC Securities considers that the ASX listed market price represents an appropriate basis to
determine the value of a share in G.U.D. PwC Securities has formed this view on the basis that:






the G.U.D market traded price reflects the value of a portfolio (or minority) interest in G.U.D
which excludes the value of any premium for control
Breville shareholders (if they accept the Offer) will hold a portfolio (or minority) share interest in
G.U.D which is consistent with the basis of the share trading in G.U.D. The G.U.D market
traded price reflects the value that a Breville shareholder could expect to realise if they sell
their G.U.D holding in the near term (if the Offer is successful and they accept the Offer)
no shareholder in G.U.D holds a significant stake which would deter current and prospective
shareholders’ interest in the company
G.U.D’s shares are actively traded on the ASX, there are no restrictions on the trading of
G.U.D shares and G.U.D’s share price does not appear to be affected by illiquidity (refer
section 5.8)
G.U.D forms part of the S&P ASX 200 and is regularly analysed by investment advisors and
institutional investors. Significant information concerning G.U.D’s financial position and
performance has been released to the market in annual financial reports, investor
presentations and G.U.D’s Bidder’s Statement
the ASX listing rules require all ASX listed entities to notify the ASX immediately of any
information of which it becomes aware in regards to itself which a reasonable person would
expect to have a material effect on the price or value of its shares (subject to certain
exceptions).
PwC Securities has also calculated the earnings multiples implied by G.U.D’s share price as a crosscheck of the reasonableness of the value of a G.U.D share on a minority interest basis.
Methodology adopted to establish the value of a G.U.D share
For the purpose of assessing the value of a G.U.D share offered as consideration for the four Breville
shares, PwC Securities has had separate regard to:

the standalone value of a G.U.D share by reference to:
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ANNEXURE B
Independent Expert’s Report
Section 8 – Valuation of G.U.D

o
the traded price (both closing and VWAP) of G.U.D shares for the immediate 30 day
period leading up to G.U.D announcing the Offer. Whilst the 2009 G.U.D annual general
meeting had not occurred prior to the announcement of the Offer, G.U.D shareholders and
the market had access to G.U.D’s financial statements and profit announcement for the
year ended 30 June 2009
o
the traded price of G.U.D shares between the date the Offer was announced and 30
October 2009. Care needs to be taken in placing reliance on the trading prices during this
period as doing so will potentially double count the benefit of the transaction to the extent
that the prices include an assessment by the market of the likely benefits of the Offer
(adjusted for the probability of the benefits being realised). PwC Securities has separately
allowed for expected synergy benefits when assessing the notional value of the combined
entity (refer below).
an assessed notional minority value of a share in the combined entity on the basis that the
Offer is successful and G.U.D ultimately holds either a 50.1% or 100% interest in Breville. An
assessment of the value has been performed under both scenarios as the level of synergies
expected to be realised and the resulting value of the consideration under each scenario are
significantly different.
The assessed notional minority interest value in the combined entity will reflect the potential impact of:




dilution: the value of a G.U.D share will be diluted to the extent that the Offer incorporates a
control premium and is successful. This is due to the G.U.D share price reflecting a minority
interest value. PwC Securities assessment of the notional value of the combined entity
incorporates the impact of dilution
synergy benefits: the benefit of any synergies expected to be realised if the Offer is successful
are significant at 100% and will likely increase the value of a G.U.D share. If G.U.D are unable
to successfully obtain a 100% interest in Breville then the level of annual synergy benefits
available are expected to be limited (between $1.0 million and $2.0 million per annum). PwC
Securities assessment of the notional value of the combined entity incorporates the expected
impact of synergy benefits
company re-rating: if the Offer is successful, a market re-rating of G.U.D may occur. PwC
Securities has not incorporated the benefit of any re-rating in its assessed value of G.U.D on
the basis that any re-rating is too uncertain. There is a stronger prospect for G.U.D to be rerated if it successfully acquires a 100% interest in Breville versus an interest (ie less a 90%
interest) which does not allow for the full value of the expected synergies to be realised within
a short period of time
volatility of G.U.D shares: the volatility of G.U.D shares has broadly followed the volatility of
the ASX 300 Consumer Discretionary Index (300 Index) for the period from January 2007 to
October 2009 (refer graph below). The volatility in a company will always be higher than in an
index as the index is based on the share price movement of a portfolio of companies which are
not perfectly correlated. Except for the period between August 2008 and August 2009, during
which the volatility of G.U.D and the 300 Index significantly increased due to the global
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 8 – Valuation of G.U.D
financial crisis, G.U.D’s volatility has broadly tracked between 25% to 35%, a range that PwC
Securities considers to be expected given the nature of G.U.D’s activities and profile.
GUD share price volatility vs 300 Index
90.0
80.0
70.0
Volatility (%)
60.0
50.0
40.0
30.0
20.0
10.0
0.0
3/01/07
3/06/07
3/11/07
3/04/08
GUD share price volatility

3/09/08
3/02/09
3/07/09
300 Index
G.U.D’s growth prospects: companies that exhibit relatively higher P/E multiples than the
market as a whole generally have exhibited, or are expected to exhibit, stronger growth in
earnings. G.U.D’s P/E ratio increased to 20.7 times in July 2007, preceding the announcement
of results for the year ended 30 June 2007 (refer graph below). The P/E ratio then decreased
steadily during the 15 month period from August 2007 to November 2008 to a period low of 6.6
times on 27 November 2008. Since then, the P/E ratio has increased to its long-term average
of around 14.0 times to 15.0 times. The P/E ratio as at the date of the Offer was 14.3 times,
which is broadly in line with the current median P/E for the S&P ASX 200 Index of
approximately 14.5 times. This implies that G.U.D is expected to achieve earnings’ growth in
line with the broader market.
G.U.D trailing 12 months P/E ratio
25.0
Price per share / EPS
20.0
15.0
10.0
5.0
0.0
3/01/2007
3/06/2007
3/11/2007
3/04/2008
GUD P/E ratio
3/09/2008
3/02/2009
3/07/2009
GUD share price
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ANNEXURE B
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Section 8 – Valuation of G.U.D
G.U.D historic Share Price Movement
In the period since the Offer was announced, G.U.D shares have traded between $8.62 on 8 October
2009 and $8.66 on 30 October 2009. Within this period G.U.D shares peaked at $9.62 on 23 October
2009 and the VWAP for the period was $8.95.
In the 30 day period immediately prior to the announcement of the Offer (8 September 2009 to 8
October 2009) G.U.D shares traded at prices ranging from $8.37 to $9.07. The VWAP over this period
was $8.80.
Further commentary in respect of G.U.D historic share price movements is contained in section 5.8 of
this report.
Value of a G.U.D share offered as consideration
PwC Securities has assessed the value of a G.U.D share offered as consideration:


on a standalone basis
on a notionally combined entity basis separately assuming that 100% and 50.1% of Breville is
ultimately held by G.U.D.
In forming its view, PwC Securities has had regard to the factors described above in addition to:


general economic and stock market conditions
the number of shares to be issued by G.U.D in the event that the Offer is successful,
compared to the number of G.U.D shares currently on issue and the possibility of oversupply
of G.U.D shares on the market arising from Breville shareholders not wishing to retain their
interest in G.U.D (if they accept the Offer).
On a standalone basis
PwC Securities has assessed the value of a G.U.D share at between $8.80 and $8.95 on a standalone
basis. This implies a value of consideration for each Breville share of between $2.20 and $2.24 (based
on the Offer ratio of four to one).
On a notionally combined basis
PwC Securities has considered the equity value of the notionally combined entity of G.U.D and
Breville, assuming that G.U.D obtains 100% control of Breville and also on the basis that G.U.D
obtains a 50.1% interest in Breville. PwC Securities considers this analysis to be fundamental to the
evaluation of the Offer. If the Offer is successful (either at 100% or at least 50.1% control) accepting
Breville shareholders will own shares in G.U.D as a combined entity.
In considering the value of a G.U.D share (combined entity basis), PwC Securities has assessed the
value on a minority basis, given that the new shares issued to accepting Breville shareholders will
represent minority interests in G.U.D.
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ANNEXURE B
Independent Expert’s Report
Section 8 – Valuation of G.U.D
The value of the combined entity has been assessed based on the value of a G.U.D and Breville share
determined on a standalone minority basis as set out in this report. PwC Securities has then
incorporated the assessed value of synergies (separately for the 100% and 50.1% scenarios) to derive
a value range per share of the combined entity of between $10.27 and $10.65 (100% acquired) and
between $8.81 and $9.01 (50.1% acquired) as set out below. The values have been determined after
adjusting the number of G.U.D shares on issue for those which will be issued to accepting Breville
shareholders as Offer consideration (reflecting the impact of dilution).
Assuming 100% control
Assuming 50.1% Control
Low
High
Low
High
$m
$m
$m
$m
G.U.D equity value
533.3
542.4
533.3
542.4
Breville minority interest equity value
255.9
270.0
255.9
270.0
Adjust for % held by G.U.D (fully diluted basis)
19.08%
19.08%
50.10%
50.10%
Adjusted Breville equity value
207.1
218.5
79.4
83.8
Add: synergies (100%)
155.0
167.5
11.0
12.0
Aggregated equity value
895.4
928.4
623.7
638.2
Existing G.U.D shares
60,606,420
60,606,420
60,606,420
60,606,420
Add: shares issued to accepting Breville shareholders
26,585,903
26,585,903
10,191,592
10,191,592
Adjusted G.U.D shares on issue
87,192,323
87,192,323
70,798,012
70,798,012
10.27
10.65
8.81
9.01
2.57
2.66
2.20
2.25
Value per G.U.D share ($)
Implied value per Breville share ($)
The assessed G.U.D values per share imply a share value of between $2.57 and $2.66 (100%
scenario) and between $2.20 and $2.25 (50.1% scenario) per Breville share (based on the Offer ratio
of four to one).
Breville shareholders should be aware that the estimate of the value of a share in G.U.D (as a
combined entity) does not necessarily reflect the price at which the shares will trade if the Offer is
successful. The share price at which G.U.D (as a combined entity) will ultimately trade depends on a
range of factors including the supply and demand for G.U.D’s shares, achievement of synergistic
benefits, liquidity of market trading in G.U.D’s shares and future economic conditions.
8.3.
Cross-check
PwC Securities has assessed the equity value of the combined entity assuming 100% of Breville is
obtained to be between $895.4 million to $928.4 million (reflecting a minority interest shareholding).
This implies an enterprise value range of between $1,027.8 million to $1,064.8 million based on an
average level of debt estimated to be between $140 million to $145 million for the combined entity
($100 million estimated for G.U.D on a standalone basis based on 2008 and 2009 publicly available
data) and $40 million to $45 million estimated for Breville on a standalone basis adjusted to reflect
G.U.D’s existing holding in Breville).
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ANNEXURE B
Independent Expert’s Report
Section 8 – Valuation of G.U.D
The implied FY10 EBITDA multiple of the combined entity is approximately 7.5 times to 7.7 times. This
is calculated based on a combined entity EBITDA of $138.4 million which reflects:



2010 forecast normalised EBITDA adopted for Breville of $41.0 million
broker consensus 2010 EBITDA forecasts for G.U.D of $74.9 million
$22.5 million as estimated ongoing synergies.
PwC Securities considers the implied EBITDA range to be reasonable based on the EBITDA multiples
of G.U.D and Breville on a standalone minority basis and having regard to broadly comparable
companies.
Summary of the assessed value of a G.U.D share offered as consideration
1
Low
High
$m
$m
GUD (minority basis per share)
8.80
8.95
Implied value per Breville share
2.20
2.24
GUD (100% control of Breville) per share
10.27
10.65
Implied value per Breville share
2.57
2.66
GUD (50.1% control of Breville) per share
8.81
9.01
Implied value per Breville share
2.20
2.25
¹ Low based on 30 day VWAP prior to the offer, high based on 16 day VWAP post-Offer to close of trade on 30 October 2009
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 9 – Evaluation of the Offer
Evaluation of the Offer
9.
Fairness test
PwC Securities has assessed that the Offer is not fair to Breville’s non-associated shareholders.
G.U.D is offering Breville shareholders one G.U.D share for every four Breville shares held. If
successful, the Offer will result in G.U.D obtaining control of Breville.
To determine whether the Offer is fair to Breville shareholders, PwC Securities has compared the
value of a Breville share being acquired (on a control basis) with the value of the consideration being
offered, represented by a share in G.U.D on a minority basis. The value of G.U.D has been assessed
based on a standalone (excluding Breville) basis and also on a notionally combined entity basis
assuming the Offer is successful, separately at 100% and 50.1% of Breville (adjusted to reflect the
scrip consideration ratio of one to four). This comparison is presented below:
Fairness test
Breville (controlling basis) per share
Low
High
$
$
2.73
2.90
Standalone basis
G.U.D (minority basis) per share1
8.80
8.95
Implied value per Breville share
2.20
2.24
G.U.D (100% control of Breville) per share
10.27
10.65
Implied value per Breville share
2.57
2.66
G.U.D (50.1% control of Breville) per share
8.81
9.01
Implied value per Breville share
2.20
2.25
Notionally combined basis
¹ Low based on 30 day VWAP prior to the offer, high based on 16 day VWAP post-Offer to close of trade on 30 October 2009.
PwC Securities has assessed the Offer as not fair because the low end of its assessed value per
Breville share of $2.73 exceeds:


the high end of the value range for the notionally combined entity, assuming 100% control of
Breville, of $2.66 (implied value per Breville share)
the high end of the value range for the notionally combined entity, assuming 50.1% control of
Breville, of $2.25 (implied value per Breville share).
The low end also exceeds the high end of the value range for G.U.D (standalone) having regard to
recent share trading of $2.24 (implied value per Breville share).
PwC Securities considers that Breville shareholders should be entitled to participate in 50% of the
value of expected synergies (refer to section 7.5). If the value of synergies are excluded, the assessed
value range for Breville is between $2.14 and $2.26 per share. This value range falls below or within,
the assessed value ranges of the consideration being offered.
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ANNEXURE B
Independent Expert’s Report
Section 9 – Evaluation of the Offer
Is the Offer reasonable?
PwC Securities has assessed that the Offer is not reasonable. PwC Securities has formed this view by
considering the advantages and disadvantages and other matters to the non-associated Breville
shareholders if they accept or reject the Offer. These are set out below:
Advantages
Premium on Breville’s share price prior to the Offer
A G.U.D share price of $8.80, based on the 30 day VWAP prior to the announcement of the Offer,
implies a Breville share price of $2.20 based on the terms of the Offer.
Breville’s share price since the announcement of the Offer (up to 30 October 2009) has traded
between $2.09 and $2.31 at a VWAP of $2.20. The closing price of Breville immediately preceding the
Offer was $1.50 and the 30 day VWAP preceding the announcement of the Offer was $1.44.
The implied Breville share price of $2.20 represents a premium of approximately 53% and 47% to the
30 day VWAP ($1.44) and closing share price ($1.50) immediately prior to the announcement of the
Offer, respectively.
In the event the Offer does not succeed, the Breville share price is likely to fall from the levels
observed post the announcement of the Offer. The extent of any decline will be dependent upon:




any re-rating of Breville from the earnings expectation upgrade referred to at section 2 of the
Target Statement which positively impacts its share price. PwC Securities has assessed the
minority interest value of a Breville share to be between $1.95 and $2.05, based on Breville’s
forecast earnings for the year ended 30 June 2010
the market’s assessment of the prospect that a future transaction (including consideration for
control and synergy benefits) is likely to occur in the foreseeable future
general movements in market sentiment, economic outlook or earnings expectations which
positively impact Breville’s share price
the impact of Breville’s level of share trading liquidity.
Breville’s share price may also fall in the event that the Offer is successful at less than 100%. In such
circumstances the extent of decline will be dependent upon the factors above, in addition to:



the prospect that G.U.D may seek 100% ownership of Breville at a future date at a price equal
to or exceeding the assessed value of the consideration currently offered
the impact of decreased liquidity for Breville shares
the market’s assessment that Breville’s future prospects will be negatively affected by a major
competitor controlling its strategic direction.
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section 9 – Evaluation of the Offer
Access to synergy benefits
In the event the Offer is successful, synergistic benefits are expected to accrue to Breville
shareholders. If G.U.D successfully acquires 100% of the shares in Breville, the benefits are expected
to be realised over a relatively short period of time and with relatively minor realisation costs outside of
staff redundancies (refer section 7.5 of this report).
Breville management have estimated that maintainable pre-tax cost savings and incremental revenue
opportunities, of between $20 million to $25 million per annum, could be realised by G.U.D by
obtaining 100% of Breville. Breville management have also estimated that annual benefits of
approximately $20 million to $30 million could be realised by other potential international purchasers.
The estimated cost to realise these synergies is approximately $5 million.
There is some risk that all identified benefits will not be fully realised, that they will take longer to
achieve in practice or that the implementation costs will be higher than expected. Significant risks
which may impact the timing, quantum and ability to achieve the expected benefits, and also the level
of market share, include:



the integration of the businesses may be a distraction for management and staff which could
negatively impact the businesses if not managed effectively
the responses from competitors
the ability to integrate back office and information technology (IT) systems.
In the event that G.U.D achieves less than 100% ownership of Breville, Breville management have
estimated that minimal cost savings will be available. This is discussed further in the disadvantages of
the Offer below.
To the extent that the Offer is not successful and no other transaction is forthcoming, or expected to be
forthcoming, either from G.U.D or another interested party, then Breville shareholders will not be able
to benefit from the realisation of these potential synergies.
Increase in liquidity and market capitalisation for Breville shareholders who accept the Offer
G.U.D’s recent share trading history has displayed a higher level of liquidity than Breville’s. G.U.D is
also included in the S&P ASX 200 Index. If the Offer is successful G.U.D’s assessed market
capitalisation at 100% ownership of Breville is estimated to be between $895.4 million and $928.4
million, assuming G.U.D shares trade within the assessed value range indicated in this IER. At 50.1%
ownership, G.U.D’s expected market capitalisation is estimated to be between $623.7 million and
$638.2 million. At these levels of market capitalisation, it is unlikely that G.U.D would form part of the
S&P ASX 100 Index, without significant earnings growth or further acquisitions.
Whether G.U.D remains in the S&P ASX 200 Index is ultimately dependant upon its market
capitalisation and trading liquidity, however companies in this index are typically more frequently
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ANNEXURE B
Independent Expert’s Report
Section 9 – Evaluation of the Offer
traded and therefore have higher liquidity levels than smaller companies. In addition, the index is
widely utilised by fund managers and institutional shareholders to benchmark performance.
Being a shareholder in the larger G.U.D may benefit Breville shareholders who accept the Offer and
retain their resulting interest in G.U.D through greater analyst coverage, institutional interest and
liquidity to trade their shares, relative to if they remain a shareholder of Breville.
Increased dividend payments
G.U.D has historically paid higher dividends per share than Breville. In addition, Breville’s recent
dividend payments have been unfranked. G.U.D has indicated that if the Offer is successful, accepting
Breville shareholders may benefit from increased dividends per share. Ultimately, this will depend
upon G.U.D’s future earnings per share, level of gearing and dividend policy. The attractiveness of
receiving increased dividend payments will depend on each Breville shareholder’s preference for
dividend receipts over share price appreciation.
Opportunity to participate in a control transaction
If the Offer is successful, accepting Breville shareholders may benefit from participating in a control or
other similar transaction if they remain a shareholder of G.U.D, if such a transaction ultimately
transpires. However at the time of completing this IER, PwC Securities is unaware of any prospect for
such a transaction to occur.
Disadvantages
The value of the consideration offered is uncertain, largely due to uncertainty over synergy benefits
able to be realised
If the Offer is successful, the value of consideration to be received by accepting Breville shareholders
will depend on the level of ownership ultimately held by G.U.D. PwC Securities has assessed the value
of the consideration at between $2.20 and $2.25 per Breville share if 50.1% ownership is achieved and
at between $2.57 and $2.66 per Breville share if 100% is achieved.
This is because the potential synergistic benefits outlined in the IER are anticipated to be available
only in the event that G.U.D achieves 100% ownership of Breville. In the event that G.U.D achieves
less than 100% ownership (either as a result of this Offer, or at some future date), the ability to extract
cost savings and achieve revenue increments will be significantly reduced. Under this scenario it is
anticipated that minimal benefits will be available (estimated at between $1 million and $2 million per
annum) and will primarily relate to freight savings.
It is likely that Breville shareholders will not know what value will be received under the Offer until
completion, or near completion, of the Offer.
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ANNEXURE B
Independent Expert’s Report
Section 9 – Evaluation of the Offer
Incentive for G.U.D to seek a 100% interest in Breville
There are significant incentives for G.U.D to achieve a 100% interest in Breville. These include the
ability to realise the significant increment in expected synergies which cannot be unlocked unless
100% of Breville is acquired, ultimately benefiting from reducing cost structures, an enhanced brand
portfolio (to expand current product ranges into markets which it is currently unable to enter under the
Sunbeam brand) and capitalising on combined product development strengths across Breville and
G.U.D.
Prospect for an increased offer from G.U.D
If G.U.D does not succeed in obtaining 100% of Breville or at least 50.1% interest in Breville, PwC
Securities considers that G.U.D may:





increase its current Offer
make an alternate offer at a later date to acquire any outstanding shares
increase its shareholding under the creeping acquisition provisions of the Corporations Law
a combination of the above
hold or sell its existing shareholding in Breville.
PwC Securities considers that G.U.D has capacity to increase its Offer for Breville shares on the basis
that:



it is currently offering scrip and not cash
G.U.D can increase its current Offer to within the range of values for a Breville share assessed
as fair by PwC Securities, acquire a 100% interest in Breville and still provide incremental
value to existing G.U.D shareholders
G.U.D has not declared its Offer final.
G.U.D is unlikely to obtain a 100% interest in Breville under the Offer
G.U.D has indicated that a number of Breville shareholders intend to support the Offer (in the absence
of a superior offer). G.U.D, in their Bidder’s Statement, note these shareholders hold approximately
28% of Breville. If they accept, G.U.D will hold approximately 47% of Breville.
The directors of Breville have indicated that they will unanimously reject the Offer in respect of their
Breville shareholdings (less than 1% of Breville’s issued shares).
Premier Investments Ltd (Premier) and parties with interests in Breville connected with the family of
Mr. Solomon Lew, the Chairman of Premier (combined holding of approximately 29% on a fully diluted
basis) (the Premier and Lew Interests) have not indicated whether they will accept or reject the Offer.
G.U.D cannot acquire 100% of Breville without these shareholders accepting the Offer, at least in part,
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Independent Expert’s Report
Section 9 – Evaluation of the Offer
to enable G.U.D to hold 90% of Breville and seek to compulsorily acquire the remaining shares in
Breville to reach 100% ownership.
Premier notes on its website that:
“Premier was established as an investment company to maximise growth in capital
returns to shareholders through the acquisition of controlling or strategic
shareholdings in premier Australian companies with a particular concentration on
the areas of retailing, importing and distributing.”
Based on Premier’s stated objective, PwC Securities considers that the Premier and Lew Family
interests are not likely to accept the Offer unless there is no alternate manner in which to strategically
achieve a higher value for their interests than that provided under the Offer.
Opportunity to participate in a control transaction
Accepting Breville shareholders will lose the opportunity to participate in another control transaction
relating to Breville, unless G.U.D is the subject of a takeover offer, and accepting Breville shareholders
maintain their shareholding in G.U.D.
Other considerations
Prospects for and likely value of, a superior alternative offer from another party
PwC Securities is not aware of any superior alternative offer being contemplated for Breville as at the
date of this IER. Based on the assessment of value, including available synergies (including those
Breville management have determined would be available to a buyer other than G.U.D) the likely value
that an alternate buyer may place on Breville shares, if all of Breville’s shares were available for
purchase, would be similar to the value assessed by PwC Securities in this IER of between $2.73 and
$2.90 per share.
It may be possible for a value to be realised by Breville shareholders in excess of this amount either
from an increased offer from G.U.D or another party. However PwC Securities considers this to be
most likely dependent upon there being more than one bidder seeking control of Breville. G.U.D’s
existing holding in Breville may act as a disincentive for an alternate offer to be forthcoming from
another party.
Earnings per share (EPS)
If successful, the Offer is expected to be EPS accretive (based on broker consensus forecasts) for
accepting Breville shareholders (compared to remaining a shareholder in Breville). However the
amount of expected accretion is significantly different depending upon whether G.U.D is able to realise
the anticipated synergy benefits from combining Breville and G.U.D. Forecast EPS has been
calculated below (based on broker consensus forecasts) for Breville on a standalone basis
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Independent Expert’s Report
Section 9 – Evaluation of the Offer
(unsuccessful Offer or for those shareholders who do not accept the Offer) and on a notionally
combined entity basis whereby G.U.D holds either a 50.1% or 100% interest in Breville.
Based on Breville management’s forecast and broker consensus forecasts for G.U.D, the EPS
increment is less than two cents (at 50.1%) and approximately six cents (at 100%) for the year ending
30 June 2010.
2009
1
Actual
2010
2011
2012
2
Broker Consensus Forecast
2010
Management
3
Forecast
Breville standalone
NPAT ($'m)
Number of Breville shares
Breville EPS (cents)
4
15.9
17.6
20.3
22.5
19.1
131,417,322
13.1
131,417,322
13.4
131,417,322
15.4
131,417,322
17.1
131,417,322
14.5
46.1
70,798,012
49.2
70,798,012
52.1
70,798,012
46.6
70,798,012
16.3
22%
17.4
13%
18.4
8%
16.4
69.6
87,192,323
74.1
87,192,323
78.1
87,192,323
70.8
87,192,323
19.9
49%
21.2
37%
22.4
31%
20.3
Combined entity at 50.1%
5
NPAT ($'m)
Number of G.U.D shares
6
Implied Breville EPS (cents)
% increase over Breville standalone
Combined entity at 100%
5
NPAT ($'m)
Number of G.U.D shares
6
Implied Breville EPS (cents)
% increase over Breville standalone
1. Underlying NPAT (2009 annual report).
2. 2010 (forecast), 2011 (forecast) and 2012 (forecast) based on consensus broker forecasts immediately post the announcement of the Offer.
3. Underlying reported NPAT as set out in the Target Statement.
4. Fully diluted.
5. Based on Breville NPAT above adjusted for shares already held by G.U.D, consensus G.U.D NPAT broker forecasts and adjusted for synergies at 50.1% and 100%
as set out in the IER, and fully diluted Breville shares.
6. Adjusted for Offer ratio of one G.U.D share for every four Breville shares.
Relative risks
Breville shareholders who accept the Offer will receive shares in a larger, more diversified company
(on a combined basis) than Breville. The effective interest of a Breville shareholder (who accepts the
Offer) in Breville’s business will be diluted by becoming exposed to G.U.D’s cleaning, water,
automotive and security products businesses. These businesses may have different risk profiles and
expected earnings growth prospects than that associated with Breville’s existing business.
Remaining a minority shareholder in Breville
There is no certainty that G.U.D will increase their Offer or another party will make an offer at a price
exceeding the assessed value of consideration under G.U.D’s Offer. If the Offer is successful at less
than 100%, and G.U.D does not seek to achieve 100% ownership, Breville shareholders are likely to
remain as minority shareholders in a company controlled by a key competitor.
Scrip for scrip rollover relief may not be available
The tax consequences of accepting the Offer will vary between individual Breville shareholders.
General advice in relation to the tax implications of the Offer is set out in section 9 of G.U.D’s Bidder
Statement.
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Section 9 – Evaluation of the Offer
Scrip for scrip rollover relief will only be available if the Offer is successful and G.U.D holds at least
80% of Breville shares after the Offer. In the event that at the expiry of the Offer, G.U.D holds in
excess of 50.1% of Breville’s shares and the requirements for rollover relief are not satisfied, accepting
Breville shareholders who realise a capital gain may have a tax liability.
No cash alternative
The Offer is a scrip for scrip transaction and there is no cash alternative for Breville shareholders. In
the event that the Offer is successful, the value of the consideration received by accepting Breville
shareholders will ultimately depend on G.U.D’s share price at the time.
G.U.D’s share price post-Offer
A Breville shareholder’s decision to remain a shareholder in G.U.D is not related to the decision
whether to accept the Offer. This is a separate investment decision and will depend upon each
shareholder’s individual risk appetite, personal circumstances, and outlook for, and expectations of,
G.U.D and more broadly the market and economy.
If the Offer is successful, G.U.D’s shares may or may not trade within the assessed range indicated in
this IER (either on a 100% or 50.1% basis).
Breville shareholders with a desire for liquidity and who do not wish to accept the G.U.D Offer can sell
their shares on market at a premium to the historic Breville share price, prior to the Offer’s expiry.
Independent financial advice
The ultimate decision on whether to accept or reject the Offer should be based on each Breville
shareholder’s assessment of the Offer and their own circumstances. The taxation implications of the
Offer are likely to vary according to the circumstances for each individual Breville shareholder. PwC
Securities recommends that if any Breville shareholder is uncertain of the impact of the Offer on their
individual taxation position, is in doubt about the proposed transaction, or matters dealt with in the IER,
they should seek independent professional advice.
PwC Securities’ full opinion on the proposed transaction, and the reasoning behind its opinion, is
included in this report. PwC Securities recommends that Breville shareholders read the entire report
before deciding whether or not to accept the Offer.
The qualifications, declarations, disclaimers and consents contained in appendices to this IER form an
integral part of, and should be read with, this report.
.
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Target’s Statement
ANNEXURE B
Independent Expert’s Report
Section A – Financial Services Guide
Appendix A – Financial Services Guide
PricewaterhouseCoopers Securities Limited
This Financial Services Guide (FSG) is dated 16 November 2009.
About Us
PwC Securities (ABN 54 003 311 617, Australian Financial Services Licence No 244572) has been
engaged by Breville to provide a report in the form of an IER for inclusion in this Target Statement.
You have not engaged us directly but have been provided with a copy of the IER as a retail client
because of your connection to the matters set out in the IER.
This Financial Services Guide
This FSG is designed to assist retail clients in their use of any general financial product advice
contained in the IER. This FSG contains information about PwC Securities generally, the financial
services we are licensed to provide, the remuneration PwC Securities may receive in connection with
the preparation of the IER, and how complaints against us will be dealt with.
Financial services we are licensed to provide
Our Australian Financial Services Licence allows us to provide a broad range of services, including
providing financial product advice in relation to various financial products such as securities, interests
in managed investment schemes, derivatives, superannuation products, foreign exchange contracts,
insurance products, life products, managed investment schemes, government debentures, stocks or
bonds and deposit products.
General financial product advice
The IER contains only general financial product advice. It was prepared without taking into account
your personal objectives, financial situation or needs.
You should consider your own objectives, financial situation and needs when assessing the suitability
of the IER to your situation. You may wish to obtain personal financial product advice from the holder
of an Australian Financial Services Licence to assist you in this assessment.
Fees, commissions and other benefits we may receive
PwC Securities charges fees to produce reports, including this IER. These fees are negotiated and
agreed with the entity who engages PwC Securities to provide a report. Fees are charged on an hourly
basis or as a fixed amount depending on the terms of the agreement with the person who engages us.
Directors, authorised representatives or employees of PwC Securities, PricewaterhouseCoopers
(PwC), or other associated entities, may receive partnership distributions, salary or wages from PwC.
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Section A – Financial Services Guide
Associations with issuers of financial products
PwC Securities and its authorised representatives, partners, employees and associates may from time
to time have relationships with the issuers of financial products. For example, PwC may be the auditor
of, or PwC Securities may provide financial advisory services to, the issuer of a financial product in the
ordinary course of its business.
Complaints
If you have a complaint, please raise it with us first, using the contact details listed below. We will
endeavour to satisfactorily resolve your complaint in a timely manner. In addition, a copy of our internal
complaints handling procedure is available upon request. If we are not able to resolve your complaint
to your satisfaction within 45 days of your written notification, you are entitled to have your matter
referred to the Financial Industry Complaints Service (FICS), and external complaints resolution
service. You will not be charged for using the FICS service.
Contact details
PwC Securities can be contacted by sending a letter to the following address:
Mr Nigel Smythe
Authorised Representative
PricewaterhouseCoopers Securities Limited
GPO Box 1331L
MELBOURNE VIC 3001
65
137
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Appendix B – Sources of information
_________________________________________________________________________________
Appendix B – Sources of information
In preparing this IER, PwC Securities has had access to and relied upon the following major sources of
information:





















Breville Annual Reports (audited) for the 3 years ended 30 June 2007, 2008 and 2009
G.U.D’s Annual Reports (audited) for the 3 years ended 30 June 2007, 2008 and 2009
Breville Management accounts for the year ended 30 June 2008, 2009 and YTD 30
September 2009
Management forecasts for Breville to the year ended 30 June 2010, 2011 and 2012
Selected Board Papers for Breville
Breville Brand and Strategy documents, 2009
GfK Research, Small Domestic Appliances
IBISWorld Industry Report dated 17 September 2009, Household appliance wholesaling in
Australia
IBISWorld Industry Report dated 11 August 2009, Pump and compressor manufacturing in
Australia
IBISWorld Industry Report dated 29 July 2009, Motor vehicle new parts dealing in Australia
IBISWorld Company Reports for G.U.D and Breville
Datamonitor Industry Report dated June 2009, Household Appliances in Australia
Datamonitor Industry Report dated June 2009, Household Appliances in Canada
Datamonitor Industry Report dated June 2009, Household Appliances in the United States
Broker reports for Breville, G.U.D and other comparable companies
Comparable company annual, half yearly and quarterly reports
Press releases issued by Breville and G.U.D
Discussions and correspondence with Breville management
Financial information sourced from Bloomberg and CapitalIQ
Information on comparable listed companies sourced from Bloomberg, Capital IQ, and annual
reports
Other publicly available information including information from website.
PwC Securities has not performed an audit, review or any other verification of the information
presented to it. Accordingly, PwC Securities expresses no opinion on the reliability of the information
supplied to it.
66
138
ANNEXURE B
Independent Expert’s Report
Appendix C – Qualifications, disclaimers and consents
_________________________________________________________________________________
Appendix C – Qualifications, disclaimers and consents
Qualifications
PwC Securities is a member of PwC, a large international firm of Chartered Accountants which has
had extensive experience in providing corporate financial advice and in the preparation of IER’s. PwC
Securities is a licensed Dealer (No 11203) under the Corporations Act. The individuals responsible for
the preparation of this report are Nigel Smythe, Richard Stewart and Hamish Emms. Mr Nigel Smythe
is an associate of The Institute of Chartered Accountants in Australia and a Senior Fellow of the
Financial Services Institute of Australia. He holds a Bachelor of Business and a Graduate Diploma in
Applied Finance and Investment. He has in excess of 13 years experience preparing IER’s and
business valuations. He is a Partner with PwC and is an authorised representative of PwC Securities.
Mr Richard Stewart is a Fellow of the Financial Services Institute of Australasia, the Institute of
Chartered Accountants and the Society of Certified Practising Accountants in Australia. He is also an
adjunct professor in Business Valuation at the University of Technology, Sydney. He holds a Bachelor
of Economics and a Masters of Business Administration. He has 23 years experience with PwC. He is
also a partner of PwC, and is an authorised representative of PwC Securities. Hamish Emms is an
Associate of the Institute of Chartered Accountants in Australia and has significant experience in the
preparation of valuations and IER’s.
Declarations
Neither PwC Securities nor PwC has any interest in the outcome of the Offer. PwC Securities is
entitled to receive a fee for the preparation of this IER of approximately $285,000 based on time spent
at our normal hourly rates for this type of work and will be reimbursed for out of pocket expenses
incurred. The fee payable to PwC Securities is payable regardless of the outcome of the Offer. In
addition, PwC Securities has been indemnified by Breville in relation to any claim arising from or in
connection with its reliance on information provided by Breville. None of PwC Securities, PwC, Mr
Smythe nor Mr Stewart nor Mr Emms hold shares/units in Breville and have not held any such
beneficial interest in the previous two years.
Mr. Ross M Herron, a director of G.U.D is a retired partner of PricewaterhouseCoopers Australia
having retired in December 2002. Since his retirement he has had no ongoing role in the management
or operation of PricewaterhouseCoopers Australia.
Purpose of Report
This IER has been prepared at the request of the Directors of Breville for inclusion in the Target
Statement and should not be used for any other purpose. In particular, it is not intended that this IER
should serve any purpose other than an expression of our opinion on whether the Offer is fair and
reasonable for the non-associated shareholders of Breville. This IER has been prepared solely for the
benefit of the Directors of Breville and for the benefit of those persons not associated with G.U.D who
hold shares in Breville. Neither the whole or any part of this IER nor any reference to it may be
67
139
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Appendix C – Qualifications, disclaimers and consents
_________________________________________________________________________________
included in or attached to any document, circular, resolution, letter or statement (other than the Target
Statement mentioned above) without the prior written consent of PwC Securities to the form and
context in which it appears.
Special note regarding forward-looking statements and forecast financial information
Certain statements in this IER may constitute forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors which may cause the
actual results, performance and achievements of Breville, to be materially different from any future
results, performance or achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the following:





general economic conditions
the future movements in interest rates and taxes
the impact of terrorism and other related acts on broader economic conditions
changes in laws, regulations or governmental policies or the interpretation of those laws, the
regulations or Breville in particular
other factors referenced in this IER.
Disclaimer and consents
PwC Securities has consented to the inclusion of this IER in the form and context in which it is
included as an appendix to the Target Statement. PwC Securities’ sole involvement in the Target
Statement has been the preparation of this IER and PwC Securities' liability is limited to the inclusion
of this IER in the Target Statement. PwC Securities has not been involved in, makes no representation
regarding, and has no liability for, any other statements or other material in, or any omissions from, the
Target Statement.
In preparing this IER, Breville has indemnified PwC Securities, PwC and its employees, officers and
agents against any claim, liability, loss or expense, cost or damage, including legal costs on a solicitor
client basis, arising out of reliance on any information or documentation provided by Breville which is
false and misleading or omits any material particulars or arising from a failure to supply relevant
documentation or information.
In addition, Breville has agreed that if it makes any claim against PwC or PwC Securities for loss as a
result of a breach of our contract, and that loss is contributed to by its own actions, then liability for its
loss will be apportioned and is appropriate having regard to the respective responsibility for the loss,
and the amount Breville may recover from PwC Securities will be reduced by the extent of its
contribution to that loss.
APES 225 “Valuation Services”
This IER has been prepared in accordance with APES 225 “Valuation Services”.
68
140
ANNEXURE B
Independent Expert’s Report
Appendix D – Breville financial information
_________________________________________________________________________________
Appendix D – Breville financial information
Income statement
Income statement
$'m
30-Jun-07
30-Jun-08
30-Jun-09
30-Jun-10
345
Audited
410.2
(289.6)
120.6
6
Audited
431.9
(308.9)
123.0
6
Forecast
421.7
(298.4)
123.3
Audited
372.8
(268.8)
104.0
Revenue
Cost of goods sold¹
Gross profit
Expenses
Other income
Share of the profits of jointly controlled entities
accounted for using equity method
Employee related expenses
Advertising
Premises, lease and utilities expenses
Other expenses²
Total expenses
Underlying EBITDA
0.3
0.8
0.8
2.2
(42.2)
(11.3)
(11.1)
(7.3)
(69.3)
34.7
(47.7)
(14.9)
(12.1)
(11.4)
(85.3)
35.3
(49.8)
(15.2)
(14.5)
(10.7)
(89.4)
33.6
(84.6)
38.7
One-off / extraordinary items
Non-trading net foreign exchange (losses)/gains
Redundancy costs
Bad debt write-off
Legal fees & associated costs
Expenses associated with USA relocation
Strategy advisory costs
EBITDA
(1.3)
(1.8)
(0.7)
(0.6)
30.2
1.8
37.2
(2.0)
(1.6)
30.0
0.1
(0.1)
38.6
Depreciation and amortisation
EBIT
(4.0)
26.3
(5.3)
31.9
(6.5)
23.4
(7.4)
31.3
Finance costs, net
Interest rate swap (loss)/gain
Net profit before tax
(4.8)
21.5
(6.0)
0.6
26.5
(5.6)
(2.2)
15.6
(5.3)
1.0
27.0
Income tax expense
Net profit after tax
(4.7)
16.8
(5.6)
20.9
(3.9)
11.8
(7.2)
19.8
(50.9)
(34.0)
20.9
11.8
19.8
Discontinued operations
Loss from discontinued operations after income tax
Net proft / (loss) for the year
Source: Breville Group Limited annual reports and management accounts
1. Cost of goods sold comprise costs of inventories recognised as an expense, costs of delivering goods to customers, rebates paid / payable to customers
and the warranty provision.
2. Other expenses comprise of customer related expenses and administration expenses.
3. The manner in which revenue is reported changed after FY07 due to the level of rebates adjusted for. Growth rates and margins are impacted by this and
are therefore not directly comparable from year to year.
4. Continuing operations only.
5. FY07 sourced from comparative figures from 2008 annual report.
6. FY08 and FY09 sourced from June 2009 annual reports.
Any small differences are due to rounding
Segment information
30-Jun-2008 (Audited)
30-Jun-2007 (Audited)¹
$'m
New
Zealand
Asia
North
America
Discontinued
operations
Total
Australia
New
Zealand
Asia
North
America
30-Jun-2009 (Audited)
North
Asia
America
Total
Income statement
439.6
420.7
443.0
Total segment revenue
193.4
36.6
41.7
102.4
65.6
197.4
32.3
59.5
131.5
217.8
30.9
40.9
153.4
36.5
35.8
Underlying segment EBITDA
16.9
2.3
13.4
3.9
22.1
1.2
11.2
1.4
(33.8)
33.0
26.0
Segment EBIT
10.2
2.3
10.6
1.2
(58.1)
14.3
2.2
13.4
3.0
14.8
1.1
11.1
(1.0)
(34.0)
20.9
11.8
Net profit for the year
(50.9)
Balance sheet
250.8
207.8
206.5
Segment assets
141.5
12.7
2.2
78.5
15.8
120.4
11.3
2.1
73.9
125.9
11.0
4.1
65.5
58.5
55.3
52.2
Segment liabilities
29.1
3.6
3.7
13.2
9.0
30.6
2.8
10.2
11.7
33.4
2.9
2.0
14.0
Source: Management, Breville Group Limited Annual reports
1. The manner in which revenue is reported changed after FY07 due to the level of rebates adjusted for. Growth rates and margins are impacted by this and are therefore not directly comparable from year to year.
Any small differences are due to rounding
Australia
Total
Australia
New
Zealand
69
141
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Appendix E – G.U.D financial information
_________________________________________________________________________________
Appendix E - G.U.D financial information
Income statement
Income statement
$'m
Revenue
Cost of goods sold
Gross profit
Other income
Marketing and selling
Product development and sourcing
Logistics expenses and outward freight
Administration
Restructuring expenses²
Other income
EBIT
Net finance expense before interest rate restructure
Interest rate hedging restructure³
Profit before income tax
Income tax expense
Net profit after tax (continuing operations)
Discontinued operations³
Profit from discontinued operations (net of income tax)
Net profit after tax for the period
30-Jun-07
Audited
518.9
(327.5)
191.4
30-Jun-08
Audited¹
469.3
(280.9)
188.4
30-Jun-09
Audited
468.3
(279.7)
188.6
1.2
(58.4)
(5.7)
(35.2)
(32.2)
(3.6)
(0.6)
56.9
0.8
(59.0)
(4.4)
(34.4)
(26.9)
(8.5)
(0.7)
55.3
0.4
(55.6)
(5.6)
(37.6)
(28.1)
(1.3)
60.8
(9.2)
47.7
(9.6)
45.7
(7.7)
(3.7)
49.3
(14.1)
33.6
(13.4)
32.3
(14.5)
34.8
33.6
5.1
37.4
34.8
Source: GUD Holdings Limited annual reports
1. Restated to reflect the modification of the income statement classification of interest income and fair value gains / losses
on interest rate hedging financial instruments to include these items in finance income / expense to more appropiately portray
the nature of these transactions.
2. Restructuring expenses relate to the restructure of the Oates business (2009) and G.U.D New Zealand automotive operation (2008)
3. The profit from discontinued operations relate to the profit contribution from Victa Lawncare and profit from its sale.
Any small differences are due to rounding
Segment Information
$'m
30-Jun-2007 (Audited)
Consumer Auto Water Security
Total
1
30-Jun-2008 (Audited)
Discontinued
operations
Consumer Auto Water Security
Income statement
518.7
Total segment revenue (external)
287.5 68.6 148.8
13.8
246.6 71.5
69.5
EBITDA
34.1 13.8
22.1
3.2
39.5 19.9
EBIT
25.6 13.3
19.1
2.3
56.6
24.6 19.4
33.6
Net profit for the year
Balance sheet
Segment assets
176.4 31.5 105.6
15.5
324.2
137.2 31.3
185.0
Segment liabilities
62.3
8.1
23.6
3.1
43.4 10.9
Source: G.U.D Holdings Limited annual reports
1. The total incorporates income statement and balance sheet items not allocated to segments.
Any small differences are due to rounding
137.4
16.4
13.5
13.6
3.2
2.5
101.2
21.2
15.6
2.5
65.9
7.4
6.8
5.1
-
30-Jun-2009 (Audited)
Total
1
Consumer Auto Water Security
Total
1
534.9
81.0
61.4
37.5
254.9
36.4
29.9
78.4
19.8
19.3
123.6
17.8
15.0
11.5
2.0
1.3
468.3
71.3
60.8
34.8
302.3
182.2
138.4
49.5
30.7
9.6
95.5
15.5
14.0
2.5
303.4
172.3
70
142
ANNEXURE B
Independent Expert’s Report
Appendix F - Comparable companies
_________________________________________________________________________________
Appendix F - Comparable companies
Company
Allan International
Holdings Ltd
Description
Allan International Holdings Ltd, a Hong Kong based investment holding company, engages in the
manufacture and distribution of household electrical appliances. It offers various household
appliances, including electric knives, food processors, mixers, juicers, blenders, deep fryers, and
kettles. The company also involves in manufacturing and trading plastic injection moulds, trading
precision components, property holding, and providing sub-contracting services. It sells its products
in Europe, North and South America, and Asia.
Amalgamated
Amalgamated Appliance Holdings Ltd manufactures imports and distributes branded household
Appliance Holdings Ltd electrical and electronic durables primarily in South Africa. Its products include clothing care
appliances, coffee makers, cooking and food preparation appliances, grillers, kettles, personal care
products and other household and kitchen appliances. The company also provides electronic
products such as computers and audio visual equipment. Brands include Russell Hobbs,
Remington, Brother, Salton, Hoover, George Foreman and Polaroid.
Jarden Corp
Jarden Corp engages in the manufacturing, importing and distribution of consumer products
worldwide. The company has three segments: Outdoor Solutions, Consumer Solutions and Branded
Solutions. Products include outdoor and sporting equipment, household kitchen appliances,
personal care appliances and other small household appliances. Its key household appliance
brands include Sunbeam, Oster, Mr Coffee and VillaWare.
Nu-World Holdings Ltd Nu-World Holdings Limited, through its subsidiaries, manufactures, imports, exports, and distributes
a range of electrical appliances, consumer electronics, and branded consumer durables. It offers a
range of products, including small electrical appliances, consumer electronics, Conti motorsport, airconditioning, white goods, cell phones, global positioning system navigation systems, power tools,
generators, and home improvement products. The company is based in South Africa and key
brands include Palsonic, Sunbeam, Morphy Richards, Conti, GE, Goldair and Telefunken.
SEB SA
De’Longhi S.p.A
Fisher & Paykel
Appliances Holdings
Limited
SEB SA is a French based company that manufactures and sells cookware and household
equipment in Europe, North America, South America, and the Asia/Pacific. Its cookware products
include frying pans, saucepans and other related items; electric cooking products comprise toasters,
deep fryers, steam cookers, barbecues, rice cookers and other small appliances. The company also
offers food and beverage preparation, such as food processors and choppers, blenders, filter and
espresso coffee makers, kettles, juicers, small food-preparation equipment and electric kettles. SEB
also markets home care items such as vacuum cleaners as well as personal care items such as
hair appliances, shavers and massage machines.
De’Longhi S.p.A. designs, develops, manufactures, and markets domestic appliances in Europe,
Northern America, and internationally. It offers air conditioning and air treatment appliances, such as
air-purifiers, dehumidifiers, humidifiers, and portable air conditioners; central and portable heating
appliances; food preparation and cooking appliances comprising blenders, coffee grinders, coffee
makers, contact grills, electric barbecues, electric deep fryers, electric ovens, espresso makers, icecream makers, kettles, microwave ovens, pasta cookers, and toasters; and floor care and ironing
appliances under the De’Longhi, Kenwood, and Ariete names through the retail channel. The
company also distributes air treatment units through the professional channel. In addition, it offers
refrigeration and air-conditioning systems for industrial and civil complex uses. The company is
based in Italy
Fisher & Paykel Appliances Holdings Limited engages in the design, manufacture, and marketing of
household appliances principally in New Zealand, Australia, North America, and Europe. Its
appliances include cooking products, such as ovens, rangehoods, cook tops, splash backs, and
freestanding cookers; refrigerators; dishwashers and dish drawers; and laundry products comprising
washing machines and dryers. The company offers its products primarily under Smart Drive,
DishDrawer, Active Smart, SmartLoad, Aerotech, and Fisher & Paykel brand names. Fisher &
Paykel Appliances Holdings Limited also provides financing services.
Source: Bloomberg and CapitalIQ
71
143
Target’s Statement
ANNEXURE B
Independent Expert’s Report
Appendix G - Glossary of terms
_________________________________________________________________________________
Appendix G - Glossary of terms
Term
Definition
AGAAP
Australian Generally Accepted Accounting Principles
AIFRS
Australian International Financial Reporting Standards
Announcement Date
09-October-2009
ASIC
Australian Securities and Investments Commission
ASX
Australian Securities Exchange Limited and the market it operates
Breville
Breville Group Limited
CAGR
Compound annual growth rate
Corporations Act
The Corporations Act 2001 including the Corporations Regulations 2001
DCF
Discounted Cash Flow
DRP
Dividend reinvestment plan
EBIT
Earnings Before Interest & Tax
EBITDA
Earnings Before Interest, Tax, Depreciation & Amortisation
Enterprise Value
Value of the business (includes debt and equity)
EPS
Earnings per share
FSG
Financial service guide
FY
Financial Year
GDP
Gross Domestic Product
G.U.D
G.U.D Holdings Limited
Housewares
Housewares International Limited
IER
Independent Expert’s Report
Independent Expert
PricewaterhouseCoopers Securities Ltd (In relation to this Report)
Independent Expert’s Report
The Report prepared by the Independent Expert set out in the Explanatory Memorandum
Market capitalisation
Value of shares outstanding multiplied by the current price per share
NPAT
Net Profit After Tax
NPBT
Net Profit Before Tax
NTA
Net Tangible Assets
P/E
Price to earnings
Premier
Premier Investments Limited
PwC
PricewaterhouseCoopers
PwC Securities
PricewaterhouseCoopers Securities Ltd
S&P
Standard & Poor’s
VWAP
Volume Weighted Average Price
72
144
ANNEXURE C
ASX announcements in relation to Breville
Below is a list of ASX announcements released in relation to Breville since the announcement to ASX of
GUD’s acquisition of 19.4% of Breville Shares on 29 May 2009 up to 13 November 2009.
HEADLINE
DATE
GUD: Acquisition 19.4% Strategic Interest in Breville Group
29 May 2009
Becoming a substantial holder from GUD
1 June 2009
Ceasing to be a substantial holder
5 June 2009
Year End 30 June 2009 Appendix 4E
24 August 2009
Year End 30 June 2009 Report Announcement
24 August 2009
Year End 30 June 2009 Investor Presentation
24 August 2009
Change of Director’s Interest Notice
27 August 2009
GUD Holdings Limited Takeover Offer for BRG
9 October 2009
GUD Investor Presentation: Takeover Offer for Breville Group
9 October 2009
Chairman’s Letter and Notice of Annual General Meeting
9 October 2009
2009 Annual Report
9 October 2009
Breville Response - Takeover Offer by GUD
9 October 2009
2009 Annual Report revised
9 October 2009
GUD: Bidder’s Statement
12 October 2009
Breville shareholders should TAKE NO ACTION
13 October 2009
GUD: Appendix 3B
16 October 2009
GUD: Supplementary Bidder’s Statement
20 October 2009
Chairman’s Letter to Shareholders -TAKE NO ACTION
26 October 2009
GUD: Notice of Dispatch of Bidder’s Statement
27 October 2009
Breville Trading Update
10 November 2009
AGM 2009 Chairman’s Address, CEO’s Address
10 November 2009
AGM 2009 Presentation
10 November 2009
AGM 2009 Results of the Meeting
10 November 2009
ASIC extension of Target’s Statement dispatch
10 November 2009
Update on takeover timetable
11 November 2009
145
Target’s Statement
ANNEXURE D
Key assumptions to illustrative pro forma
EPS accretion for GUD set out in section 1
of this Target’s Statement
(a)The analysis is illustrative and pro forma in nature and is provided so that Breville Shareholders
are aware of the analysis of possible scenarios. It is included to show an indication of the possible
impact of an acquisition of Breville on GUD - it does not purport to forecast the precise actual impact
on GUD. The actual impact may differ to that shown in the illustrative pro forma analysis for various
reasons including matters relating to the cost of any acquisition, the timing of any acquisition, the
financial position of GUD and Breville at the time of any acquisition, the number of Breville Shares
acquired under the Offer, the financial performance of GUD and Breville after any acquisition has
been completed, the amount, timing and cost to achieve synergy benefits, the costs and method of
funding any acquisition and the impact of any other relevant transactions.
(b)The illustrative pro forma analysis assumes that GUD acquired Breville on 1 July 2008. GUD is
assumed to have acquired 106.3 million Breville Shares at GUD’s Offer price and 25.1 million Breville
Shares (approximately 20% of Breville’s issued capital) at a total acquisition cost of $18.1 million
(being the price paid by GUD for its 19.4% shareholding in Breville).
(c)GUD’s NPAT is based on FY2009A Reported NPAT adjusted to exclude the net of tax effect of the
interest rate hedging restructure of $3.7 million. GUD’s EPS is based on current shares on issue. The
financial profile for Breville used in the analysis is as per the Underlying Reported NPAT for Breville as
set out in section 5 of this Target’s Statement.
(d)Breville’s Board estimates that GUD could realise cost and volume synergies in the range of at least
$20– $25 million per annum. Breville also estimates that it will cost $5 million to achieve these
synergies. The illustrative pro forma analysis includes $25 million of synergies, the top end of the
range provided by Breville. The profit and loss impact of the one-off $5 million costs to achieve
the synergies has been excluded from the illustrative pro forma accretion analysis because Breville
considers these to be non-recurring. The impact of the after-tax interest expense which is incurred
on additional debt incurred to fund the $5 million cost to achieve the synergies has been taken into
account in calculating the EPS accretion.
(e)In each scenario GUD is assumed to fund the acquisition of 106.3 million Breville Shares through the
issue of new GUD Shares to Breville Shareholders. GUD is assumed to fund transaction costs equal
to $5.0 million through debt facilities.
(f)The cost of debt funding for the transaction costs and costs to achieve synergies, is assumed to be
8.0% per annum.
(g)The acquisition adjustments made to reflect the synergies and interest costs are tax effected at
30.0%.
(h)The impact on interest expense (and associated tax impact) of incremental cash flows generated
during the period have been excluded from the analysis.
(i)Illustrative pro forma EPS excludes the impact of any fair value accounting adjustments and
associated depreciation and amortisation impacts which may arise following an acquisition of Breville
by GUD. The illustrative pro forma EPS also excludes the impact of any depreciation arising in
relation to any part of the $5 million cost to achieve synergies that are capital in nature.
146
12Corporate directory
Breville Group Limited
ABN 90 086 933 431
Corporate office and registered office
Building 2,
Port Air Industrial Estate,
1A Hale Street
Botany NSW 2019
Telephone: (02) 9384 8100
Facsimile: (02) 9700 1249
Breville Shareholder Information Line
1800 207 622
Monday to Friday between 8.30am and 5.30pm (Melbourne Time)
Breville share registry
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Telephone (if in Australia): (02) 8280 7111
Telephone (if overseas): (+61 2) 8280 7111
Financial adviser
UBS AG, Australia Branch
Level 16, 8 Exhibition Street
Melbourne VIC 3000
Telephone: (03) 9242 6100
Legal adviser
Arnold Bloch Leibler
Level 21, 333 Collins Street
Melbourne VIC 3000
Telephone: (03) 9229 9999
Facsimile: (03) 9229 9900
147
148
ACN 086 933 431